Do oil prices and exchange rates affect the US stock market? New evidence from the asymmetric cointegration approach

Abstract

In this paper, we study the dynamics between US stock prices, exchange rates and oil prices. The data used are quarterly, covers the period from 1986 to 2016 and includes the Standard & Poor's 500 spot prices, the West Texas Intermediate spot prices and the effective exchange rate of US Dollar. We examine the presence of different sources of nonlinearities. The empirical analysis is based on the asymmetric ARDL cointegration methodology proposed by Shin et al (2011). The evidence implies that ignoring possible non-linearities lead to misleading results. The analysis reveals new evidence such as the existence of several structural brakes and asymmetries in both long-run and short-run relationships among the examined variables and that could be of major importance for researchers and other market participants.