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Testing for Linear and Nonlinear Causality between Crude Oil Price Changes and Stock Market Returns

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  • Emmanuel Anoruo

    () (School of Management Science and Economics, Coppin State University, 2500 West North Avenue Baltimore, MD 21216, USA)

Abstract

This paper examines both the linear and nonlinear causal relationships between crude oil price changes and stock market returns for the United States. In particular, the study applied a battery of unit root tests to ascertain the time series properties of crude oil price changes and stock market returns. The linear and nonlinear causality tests were conducted through the standard VAR and the M-G frameworks, respectively. The results from both the linear and nonlinear unit root tests indicate that crude oil price changes and stock market returns are level stationary. The results from the standard VAR model provide evidence of bidirectional causality between crude oil price changes and stock market returns. The results from the M-G causality test support the finding of nonlinear bidirectional causality between crude oil price changes and stock market returns.

Suggested Citation

  • Emmanuel Anoruo, 2011. "Testing for Linear and Nonlinear Causality between Crude Oil Price Changes and Stock Market Returns," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Eastern Macedonia and Thrace Institute of Technology (EMATTECH), Kavala, Greece, vol. 4(3), pages 75-92, December.
  • Handle: RePEc:tei:journl:v:4:y:2011:i:3:p:75-92
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    References listed on IDEAS

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    Cited by:

    1. repec:agr:journl:v:4(613):y:2017:i:4(613):p:97-108 is not listed on IDEAS
    2. Trust Kganyago & Victor Gumbo, 2015. "An Empirical Study of the Relationship between Money Market Interest Rates and Stock Market Performance: Evidence from Zimbabwe (2009-2013)," International Journal of Economics and Financial Issues, Econjournals, vol. 5(3), pages 638-646.
    3. Raza, Naveed & Jawad Hussain Shahzad, Syed & Tiwari, Aviral Kumar & Shahbaz, Muhammad, 2016. "Asymmetric impact of gold, oil prices and their volatilities on stock prices of emerging markets," Resources Policy, Elsevier, vol. 49(C), pages 290-301.
    4. repec:eee:reveco:v:49:y:2017:i:c:p:453-483 is not listed on IDEAS
    5. Bildirici, Melike E. & Turkmen, Ceren, 2015. "Nonlinear causality between oil and precious metals," Resources Policy, Elsevier, vol. 46(P2), pages 202-211.

    More about this item

    Keywords

    Crude oil prices; nonlinear causality; stock market returns; BDS; structural breaks;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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