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Fractional Cointegration Relationship between Oil Prices and Stock Markets: An Empirical Analysis from G7 Countries

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  • Burcu Kiran

Abstract

This paper examines the long-run relationship between oil prices and stock market prices of G7 countries by using Robinson (1994a) tests for fractional integration and cointegration instead of the classical approaches. Having found that the unit root null hypothesis cannot be rejected for any individual series, it is examined whether oil prices and stock market prices have a fractional cointegration relationship. Test results on the residuals from the cointegrating regressions indicate that there is evidence of fractional cointegration between oil prices and DAX 30, Dow Jones, FTSE 100 and SP-TSX indices while there is no evidence of fractional cointegration for others.

Suggested Citation

  • Burcu Kiran, 2011. "Fractional Cointegration Relationship between Oil Prices and Stock Markets: An Empirical Analysis from G7 Countries," Prague Economic Papers, University of Economics, Prague, vol. 2011(2), pages 177-189.
  • Handle: RePEc:prg:jnlpep:v:2011:y:2011:i:2:id:395:p:177-189
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    References listed on IDEAS

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    More about this item

    Keywords

    fractional integration; fractional cointegration; oil prices; stock markets; G7 countries;

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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