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Symmetric and Asymmetric Causal Relationship between Oil Prices and G7 Stock Markets: A Bootstrap Rolling-Window Granger Causality Test

Author

Listed:
  • Mokni, Khaled

    (Northern Border University, Saudi Arabia / Gabès University, Tunisia)

  • Nakhli, Mohamed Sahbi

    (Northern Border University, Saudi Arabia/ University of Kairouan, Tunisia/ University of Sousse, Tunisia)

  • Mnari, Othman

    (University of Kairouan, Tunisia / University of Sousse, Tunisia)

  • Bougatef, Khemaies

    (University of Kairouan, Tunisia)

Abstract

This study examines the causal relationships between oil prices and the MSCI stock index of G7 countries between September 2004 and October 2020. This study is novel in implementing symmetric and asymmetric time-varying causality tests based on the bootstrap rolling-window approach. The results reveal that the causal link between oil prices and G7 stock markets is time-dependent. The periods of bidirectional causality roughly coincide with the global financial crisis and the ongoing COVID-19 pandemic. When asymmetry is accounted for, the results suggest an asymmetric causality between the two markets expressed by different patterns regarding positive and negative oil shocks. The results also indicate symmetric causality during the COVID-19 pandemic. These findings have implications for portfolio design and hedging strategies that are important to both policymakers and investors.

Suggested Citation

  • Mokni, Khaled & Nakhli, Mohamed Sahbi & Mnari, Othman & Bougatef, Khemaies, 2021. "Symmetric and Asymmetric Causal Relationship between Oil Prices and G7 Stock Markets: A Bootstrap Rolling-Window Granger Causality Test," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 36(4), pages 718-744.
    • Handle: RePEc:ris:integr:0841
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    Cited by:

    1. Gaies, Brahim & Nakhli, Mohamed Sahbi & Ayadi, Rim & Sahut, Jean-Michel, 2022. "Exploring the causal links between investor sentiment and financial instability: A dynamic macro-financial analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 204(C), pages 290-303.

    More about this item

    Keywords

    oil price; stock market; G7 country; time-varying causality; asymmetry;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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