Abstract
This paper tries to determine the strength of the interdependence between Brent oil market and the stock markets of oil importing Visegrad group countries and oil exporting Russia in different time-horizons. The paper uses several novel and elaborate methodologies – bivariate DCC-EGARCH model, wavelet correlations and phase difference. The results of DCC model show that all dynamic correlations between Brent oil and the selected stock indices are low at daily-frequency level. The magnitude of mutual correlations does not exceed 20% for Visegrad countries, while for Russia it goes little bit over 30%. Wavelet correlations in short-term confirms DCC results, whereby this relatively weak connection is found up to 32 days. However, in midterm and long-term, wavelet correlations strengthen, and go above 50% in midterm and even beyond 80% in long-term for majority of the indices. Slovakian SAX index has stronger wavelet correlation in 32 days than in 64 days, and it goes around 23%. This means that SAX can be coupled with Brent oil for diversification purposes in both short-term and midterm portfolios. Besides, phase-difference methodology provides an evidence that SAX was in anti-phase position in two separate occasions, meaning that SAX can also serve well for hedging purposes.
Highlights
IntroductionGlobal economic growth is highly dependent on the consumption of energy resources, such as coal (lignite), natural gas and oil (see Batrancea et al, 2019; Cuestas & Gil-Alana, 2018), but it produces increased oil price turbulence
Global economic growth is highly dependent on the consumption of energy resources, such as coal, natural gas and oil, but it produces increased oil price turbulence
This subsection briefly explains the findings based on the estimated results of bivariate DCC-EGARCH model, which is capable of assessing the time-varying volatility and correlation between the selected assets
Summary
Global economic growth is highly dependent on the consumption of energy resources, such as coal (lignite), natural gas and oil (see Batrancea et al, 2019; Cuestas & Gil-Alana, 2018), but it produces increased oil price turbulence. A greater interest has been born among number of global investors, portfolio managers and policy makers towards a better understanding of the interconnection between oil prices and stock markets. Direct link is manifested via higher transportation and production costs that are caused by increased oil prices. Under this conjecture, firms will not fully embed rising costs of oil into the prices of their final products, profits will inevitably decrease due to reducing expected returns, causing stock prices to fall. Indirect connection happens due to the fact that rising oil prices undoubtedly push up an overall inflation, instigating central banks to respond by raising the interest rate, which will in turn affect stock prices
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
