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Connectedness Between Crude Oil And Us Equities: The Impact Of The Covid-19 Pandemic

Author

Listed:
  • AKTHAM MAGHYEREH

    (Department of Accounting and Finance, United Arab Emirates University, Al Ain, United Arab Emirates)

  • HUSSEIN ABDOH

    (Department of Accounting and Finance, The Citadel, The Military College of South Carolina, Charleston, SC, USA)

Abstract

This paper contributes to the literature by employing a multifractal cross-correlation analysis (MFCCA) to study the effect of the global COVID-19 pandemic on cross-correlations between oil and US equity markets. First, we examine the detrended moving average cross-correlation coefficient between oil and S&P 500 returns before and during COVID-19 and find that US stock markets became more correlated with oil during the pandemic in the long term. Second, we find that the pandemic has caused an increase in the long-range cross-correlations over the small fluctuations. Third, the MF-DCCA method shows that the pandemic caused an increase in cross-correlations between the two markets. In sum, the pandemic caused a closer correlation between oil and US equities in the long range and a deeper dynamic connection between oil and US equity markets, as indicated by the multifractality tests. We also investigate the connectedness between oil and the S&P 500 using a dynamic procedure based on time-varying parameter vector autoregression. We find that oil is a net transmitter of shocks to the forecast error variance of the S&P 500 during March, April and May 2020, whereas the S&P 500 is a net transmitter of shocks to oil variance early in the pandemic (January and February 2020).

Suggested Citation

  • Aktham Maghyereh & Hussein Abdoh, 2022. "Connectedness Between Crude Oil And Us Equities: The Impact Of The Covid-19 Pandemic," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 17(04), pages 1-30, December.
    • Handle: RePEc:wsi:afexxx:v:17:y:2022:i:04:n:s2010495222500294
    DOI: 10.1142/S2010495222500294
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    Citations

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    Cited by:

    1. Mohammad Al-Shboul & Aktham Maghyereh, 2023. "Did real economic uncertainty drive risk connectedness in the oil–stock nexus during the COVID-19 outbreak? A partial wavelet coherence analysis," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 12(1), pages 1-23, December.

    More about this item

    Keywords

    COVID-19 pandemic; oil; US equity; multifractality; cross-correlations; connectedness;
    All these keywords.

    JEL classification:

    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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