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Testing for Linear and Nonlinear Causality between Crude Oil Price Changes and Stock Market Returns

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  • Emmanuel Anoruo

    ()
    (School of Management Science and Economics, Coppin State University, 2500 West North Avenue Baltimore, MD 21216, USA)

Abstract

This paper examines both the linear and nonlinear causal relationships between crude oil price changes and stock market returns for the United States. In particular, the study applied a battery of unit root tests to ascertain the time series properties of crude oil price changes and stock market returns. The linear and nonlinear causality tests were conducted through the standard VAR and the M-G frameworks, respectively. The results from both the linear and nonlinear unit root tests indicate that crude oil price changes and stock market returns are level stationary. The results from the standard VAR model provide evidence of bidirectional causality between crude oil price changes and stock market returns. The results from the M-G causality test support the finding of nonlinear bidirectional causality between crude oil price changes and stock market returns.

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Bibliographic Info

Article provided by Technological Educational Institute (TEI) of Kavala, Greece in its journal International Journal of Economic Sciences and Applied Research (IJESAR).

Volume (Year): 4 (2011)
Issue (Month): 3 (December)
Pages: 75-92

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Handle: RePEc:tei:journl:v:4:y:2011:i:3:p:75-92

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Related research

Keywords: Crude oil prices; nonlinear causality; stock market returns; BDS; structural breaks;

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  1. Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
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  10. Catherine Kyrtsou & Michel Terraza, 2003. "Is it Possible to Study Chaotic and ARCH Behaviour Jointly? Application of a Noisy Mackey–Glass Equation with Heteroskedastic Errors to the Paris Stock Exchange Returns Series," Computational Economics, Society for Computational Economics, vol. 21(3), pages 257-276, June.
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