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Pass-through Effects of Oil Prices on LATAM Emerging Stocks before and during COVID-19: An Evidence from a Wavelet -VAR Analysis

Author

Listed:
  • Jesus Cuauhtemoc Tellez Gaytan

    (Tecnologico de Monterrey, Mexico,)

  • Aqila Rafiuddin

    (Under Grant of FAIR, Tecnologico de Monterrey, Mexico; & University of Science and Technology, Fujairah, United Arab Emirates,)

  • Gyanendra Singh Sisodia

    (College of Business Administration, Ajman University, United Arab Emirates.)

  • Gouher Ahmed

    (Skyline University College, United Arab Emirates.)

  • CH Paramaiah

    (Skyline University College, United Arab Emirates)

Abstract

Vector Auto regression model (VAR) a time -varying parameter is applied to study the effect of oil price shocks on the returns of stocks in the LATAM (Latin American) markets. Coherent Wavelet analysis highlights possibilities of connectedness of the oil price and LATAM stock markets through the presence of different patterns in a time series. The structural demand shocks standard deviations during the COVID-19 era remain high and the pass-through effects on stock returns due to oil prices differ for different time frames. The fundamental linkages are demonstrated due to oil market specific demand. The main motive of the research work is to identify the influence of oil price on stocks and identify the fundamental source of contagion. A random effects model is applied to the panel data of LATAM markets with the Global stock market index, MSCI (Morgan Stanley Capital International World Index), domestic money market rates and currency exchange rates during the period of study, 15 March 2019 to 31 July 2021 with 684 observations of controlled non-observed characteristics from individual country. The findings of this research recommend the pass-through effect of the oil prices on the stock market returns are based on time frequency. The contribution of this paper helps the policy makers to restore the confidence amongst the investors in the stock markets and strategies to be adopted by the investors to mitigate the risk by ideal portfolio management.

Suggested Citation

  • Jesus Cuauhtemoc Tellez Gaytan & Aqila Rafiuddin & Gyanendra Singh Sisodia & Gouher Ahmed & CH Paramaiah, 2023. "Pass-through Effects of Oil Prices on LATAM Emerging Stocks before and during COVID-19: An Evidence from a Wavelet -VAR Analysis," International Journal of Energy Economics and Policy, Econjournals, vol. 13(1), pages 529-543, January.
    • Handle: RePEc:eco:journ2:2023-01-56
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    More about this item

    Keywords

    Wavelets; Wavelet-VAR; oil pass-through; LATAM stock markets; oil price volatility;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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