Dynamic correlation between stock market and oil prices: The case of oil-importing and oil-exporting countries.

Filis, G., Degiannakis, S. and Floros, C., 2011. Dynamic correlation between stock market and oil prices: The case of oil-importing and oil-exporting countries. International Review of Financial Analysis, 20 (3), 152 - 164 .

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DOI: 10.1016/j.irfa.2011.02.014

Abstract

The paper investigates the time-varying correlation between stock market prices and oil prices for oil-importing and oil-exporting countries. A DCC-GARCH-GJR approach is employed to test the above hypothesis based on data from six countries; Oil-exporting: Canada, Mexico, Brazil and Oil-importing: USA, Germany, Netherlands. The contemporaneous correlation results show that i) although time-varying correlation does not differ for oil-importing and oil-exporting economies, ii) the correlation increases positively (negatively) in respond to important aggregate demand-side (precautionary demand) oil price shocks, which are caused due to global business cycle’s fluctuations or world turmoil (i.e. wars). Supply-side oil price shocks do not influence the relationship of the two markets. The lagged correlation results show that oil prices exercise a negative effect in all stock markets, regardless the origin of the oil price shock. The only exception is the 2008 global financial crisis where the lagged oil prices exhibit a positive correlation with stock markets. Finally, we conclude that in periods of significant economic turmoil the oil market is not a safe haven for offering protection against stock market losses.

Item Type:Article
ISSN:1057-5219
Uncontrolled Keywords:oil prices; oil price shocks; stock market returns; DCC-GARCH; dynamic correlation.
Subjects:UNSPECIFIED
Group:Business School
ID Code:20578
Deposited By: Unnamed user with email symplectic@symplectic
Deposited On:23 Jan 2013 11:21
Last Modified:16 Jun 2014 13:46

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