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Interdependence of oil prices and stock market indices: A copula approach

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  • Sukcharoen, Kunlapath
  • Zohrabyan, Tatevik
  • Leatham, David
  • Wu, Ximing

Abstract

In this paper we study the relationship between the oil price and stock market index of various countries between 1982 and 2007. We exclude oil and gas stock companies from the stock indices to remove the obvious direct linkage. Oil price series are converted into local currency to account for possible exchange rate effects. The method of copula is used to model the general dependence between stock returns and oil price returns. Our findings suggest a weak dependence between oil prices and stock indices for most cases, which are consistent with the results from previous studies. Exceptions are for the stock index returns of large oil consuming and producing countries (United States and Canada), which are shown to have a relatively strong dependence with the oil price series. The introduction of Euro in 1999 altered considerably dependence between oil prices and stock returns.

Suggested Citation

  • Sukcharoen, Kunlapath & Zohrabyan, Tatevik & Leatham, David & Wu, Ximing, 2014. "Interdependence of oil prices and stock market indices: A copula approach," Energy Economics, Elsevier, vol. 44(C), pages 331-339.
  • Handle: RePEc:eee:eneeco:v:44:y:2014:i:c:p:331-339
    DOI: 10.1016/j.eneco.2014.04.012
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    Keywords

    International stock markets; Copula; Dependence; Oil prices;

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F3 - International Economics - - International Finance
    • 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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