IDEAS home Printed from
MyIDEAS: Login to save this article or follow this journal

Oil and S&P 500 Markets: Evidence from the Nonlinear Model

  • Yen-Hsien Lee

    (Department of Finance, Chung Yuan Christian University, 200 Chung Pei Road. Chung Li 32023, Taiwan, R.O.C.)

  • Fang Hao

    (Graduate Institute of Assets and Property Management, Hwa Hsia Institute of Technology, Taipei, Taiwan,)

Registered author(s):

    This study begins by using a MTAR model to explore the asymmetric effects of error corrections between oil prices in the U.S.A and S&P 500 prices under different regimes. After confirming the lead/lag relationship between the S&P 500 and oil prices, we employ a STECM to analyze the short-run return dynamics when there are deviations from the equilibrium between the two variables. Our empirical evidence shows that an asymmetric co-integration relationship exists between the S&P 500 and oil prices. In addition, the results of the Granger causality test based on the TECM document the unidirectional relationship from the oil price to the S&P 500 price. Moreover, the short-run adjustments of the mean reversion to equilibrium follow the LSTECM. The contribution of this study might be in that the LSTECM-GARCH model is well suited to describing the short-run return dynamics of the disequilibrium between the oil prices and S&P 500 prices in the U.S.A.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    Download Restriction: no

    File URL:
    Download Restriction: no

    Article provided by Econjournals in its journal International Journal of Economics and Financial Issues.

    Volume (Year): 2 (2012)
    Issue (Month): 3 ()
    Pages: 272-280

    in new window

    Handle: RePEc:eco:journ1:2012-03-5
    Contact details of provider: Web page:

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Yen-Hsien Lee & Chien-Liang Chiu, 2010. "Nonlinear adjustment of short-term deviations impacts on the US real estate market," Applied Economics Letters, Taylor & Francis Journals, vol. 17(6), pages 597-603.
    2. Sadorsky, Perry, 1999. "Oil price shocks and stock market activity," Energy Economics, Elsevier, vol. 21(5), pages 449-469, October.
    3. Enders, Walter & Siklos, Pierre L, 2001. "Cointegration and Threshold Adjustment," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(2), pages 166-76, April.
    4. Syed A. Basher & Perry Sadorsky, 2004. "Oil price risk and emerging stock markets," International Finance 0410003, EconWPA.
    5. Felix Chan & Michael McAleer, 2001. "Estimating Smooth Transition Autoregressive Models with GARCH Errors in the Presence of Extreme Observations and Outliers," ISER Discussion Paper 0539, Institute of Social and Economic Research, Osaka University.
    6. Jones, Charles M & Kaul, Gautam, 1996. " Oil and the Stock Markets," Journal of Finance, American Finance Association, vol. 51(2), pages 463-91, June.
    7. Bruce E. Hansen & Mehmet Caner, 1997. "Threshold Autoregressions with a Unit Root," Boston College Working Papers in Economics 381, Boston College Department of Economics.
    8. Papapetrou, Evangelia, 2001. "Oil price shocks, stock market, economic activity and employment in Greece," Energy Economics, Elsevier, vol. 23(5), pages 511-532, September.
    9. Kaul, Gautam & Seyhun, H Nejat, 1990. " Relative Price Variability, Real Shocks, and the Stock Market," Journal of Finance, American Finance Association, vol. 45(2), pages 479-96, June.
    10. Enders, Walter & Granger, Clive W J, 1998. "Unit-Root Tests and Asymmetric Adjustment with an Example Using the Term Structure of Interest Rates," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(3), pages 304-11, July.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:eco:journ1:2012-03-5. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ilhan Ozturk)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.