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A Markov Switching Approach in Assessing Oil Price and Stock Market Nexus in the Last Decade: The Impact of the COVID-19 Pandemic

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  • Seuk Wai Phoong
  • Masnun Al Mahi
  • Seuk Yen Phoong

Abstract

We revisit the oil price and stock market nexus by considering the impact of major economic shocks in the post-global financial crisis (GFC) scenario. Our breakpoint unit root test and Markov switching regression (MRS) analyses using West Texas Intermediate (WTI) oil price and Standard & Poor’s 500 (S&P 500) market index show that among the major economic events, the recent coronavirus (COVID-19) pandemic is the most significant contributor to market volatilities. Furthermore, our MRS results show that the relationship between oil price and the stock market is regime-dependent; the stock market experiences substantial and positive shocks in a volatile oil price regime. Our results provide valuable insights to investors and policymakers regarding risk management and financial market stability during economic crisis periods, specifically during the COVID-19 pandemic.

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  • Seuk Wai Phoong & Masnun Al Mahi & Seuk Yen Phoong, 2023. "A Markov Switching Approach in Assessing Oil Price and Stock Market Nexus in the Last Decade: The Impact of the COVID-19 Pandemic," SAGE Open, , vol. 13(1), pages 21582440231, February.
    • Handle: RePEc:sae:sagope:v:13:y:2023:i:1:p:21582440231153855
    DOI: 10.1177/21582440231153855
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