Oil price uncertainty and the risk‐return relation in stock markets: Evidence from oil‐importing and oil‐exporting countries

This article examines the role of oil price uncertainty measured by the crude oil volatility index (OVX) in the risk‐return relation of stock markets from oil‐importing and exporting countries with the extended GARCH‐M models. It is found that oil price uncertainties have significant impacts on the stock risk‐return relationship in oil importers and exporters. Specifically, there is a positive risk‐return relation during the decreasing period of oil price uncertainty. This positive correlation will be undermined and become negative during the rising period of oil price uncertainty in most countries studied. What's more, change in oil price uncertainty negatively affects the stock risk‐return relation in general, and it has a more significant asymmetric effect in oil exporters than that in oil importers for the whole sample. In addition, we examine whether the impact of oil price uncertainty is sensitive to the global financial crisis in 2008. Our empirical results reveal that, on average, the stock risk‐return relation is more susceptible to OVX changes after the crisis period than that during the crisis period, suggesting impacts of OVX changes are undermined due to the extremely unstable global economy.