Abstract
The aim of this research is to examine the time-varying correlation between selected industrial sector indices (oil-intensive, oil-substitutes and non-oil-related) and oil price shocks. We investigate this correlation for both oil-importing and oil-exporting economies. Using data from 1998 until 2013 and employing a Scalar-BEKK model, we report the following regularities: (1) the correlation between oil price shocks and index returns are showing some differences depending on whether a country is oil-importer or oil-exporter, (2) the correlations are industry-specific and shock-specific and (3) the demand-side shocks mainly generate moderate positive correlations, whereas index returns have low to zero correlation with the supply-side shocks. Prominent among our results is that oil-specific demand shocks have a moderate positive correlation with all indices. Our results have important implication for investors, as well as policy makers.
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