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Oil price changes and stock returns: Fresh evidence from oil exporting and oil importing countries

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  • Mohd Atif
  • Mustafa Raza Rabbani
  • Hana Bawazir
  • Iqbal Thonse Hawaldar
  • Daouia Chebab
  • Sitara Karim
  • Amani AlAbbas

Abstract

The study examines the vital connection between stock returns and oil price changes for oil exporting/importing countries separately. We present evidence employing granger causality, impulse response and error variance decomposition based on panel vector autoregression. The results of panel granger causality suggested that after oil price crash owing to covid-19 pandemic, the interdependence between oil and stock price changes increased. Similar results were revealed by impulse response graphs and forecast error variance decomposition. Specifically, in the period marked by the rapid outbreak of the covid-19 pandemic, causality from oil to stocks increased. Although we found that both oil exporting and oil importing countries were affected in a similar way, oil price changes had a larger impact on oil exporting countries. The findings of the present study have implications for investors and fund managers. By incorporating crude oil price in the prediction models, the accuracy of stock returns forecast can be improved.

Suggested Citation

  • Mohd Atif & Mustafa Raza Rabbani & Hana Bawazir & Iqbal Thonse Hawaldar & Daouia Chebab & Sitara Karim & Amani AlAbbas, 2022. "Oil price changes and stock returns: Fresh evidence from oil exporting and oil importing countries," Cogent Economics & Finance, Taylor & Francis Journals, vol. 10(1), pages 2018163-201, December.
    • Handle: RePEc:taf:oaefxx:v:10:y:2022:i:1:p:2018163
    DOI: 10.1080/23322039.2021.2018163
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    Cited by:

    1. Imangulu Muradzada & Nurkhodza Akbulev, 2023. "Empirical Analysis of the Relationship between Basic Energy Sources and the Tourism Sector Index," International Journal of Energy Economics and Policy, Econjournals, vol. 13(4), pages 513-521, July.
    2. Khan, Nasir & Saleem, Asima & Ozkan, Oktay, 2023. "Do geopolitical oil price risk influence stock market returns and volatility of Pakistan: Evidence from novel non-parametric quantile causality approach," Resources Policy, Elsevier, vol. 81(C).
    3. Nurkhodzha Akbulaev & Imangulu Muradzada & Ziyadhan Hasanov, 2023. "Relationship between Oil Prices and Russia Exchange Indices: Analysis of Frequency Causality," International Journal of Energy Economics and Policy, Econjournals, vol. 13(5), pages 607-615, September.

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