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Oil Shocks and Stock Market Volatility of the BRICS: A GARCH-MIDAS Approach

Author

Listed:
  • Afees A. Salisu

    (Department for Management of Science and Technology Development, Ton Duc Thang University, Ho Chi Minh City, Vietnam and Faculty of Business Administration, Ton Duc Thang University, Ho Chi Minh City, Vietnam)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa)

Abstract

In this study, we employ the GARCH-MIDAS model to investigate the response of stock market volatility of the BRICS to oil shocks. We utilize the recent datasets of Baumeister & Hamilton (2019) where oil shocks are decomposed into four variants - oil supply shocks, economic activity shocks, oil consumption shocks, and oil inventory shocks. We further decomposed each of these shocks into positive and negative shocks, and our findings show heterogeneous response of stock market volatility of the BRICS countries to the alternative oil shocks including the positive and negative shocks. The differing responses across the BRICS countries could be attributed to the difference in the economic size, oil production and consumption profile, market share distribution across firms, as well as financial system and regulation efficiency.

Suggested Citation

  • Afees A. Salisu & Rangan Gupta, 2019. "Oil Shocks and Stock Market Volatility of the BRICS: A GARCH-MIDAS Approach," Working Papers 201976, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201976
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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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