Nonlinear mean reversion in oil and stock markets
Purpose - While price studies such as Jawadi Design/methodology/approach - Using nonlinear econometric modeling, this paper investigates the oil market adjustment dynamics for four developed and emerging countries: France, the USA, Mexico and the Philippines. Our findings show strong evidence of significant linkages between oil and stock markets for all the countries under consideration. Findings - As in Jawadi Research limitations/implications - This paper develops a new nonlinear framework that should improve the investigation of oil-stock market linkages. Future research could check the forecasting properties of this model to forecast the future dynamics of oil prices. Originality/value - This paper adds to the literature by suggesting that it is not only oil shocks that affect stock markets, but that the latter also have a strong nonlinear impact on oil markets, reducing the diversification benefits of oil-stock portfolios.
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Volume (Year): 10 (2011)
Issue (Month): 3 (August)
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References listed on IDEAS
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- Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
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