Abstract
The aim of this paper is to study the impact of oil price fluctuations on the stock markets and the interest ratesfrom oil importing and oil exporting countries. To this end, Vector Autoregressive (VAR) models are estimatedand pairwise Granger Causality tests are performed to the stationary series in order to analyse the short-termrelationships among the variables. Also, the Johansen approach for multiple equations is carried out in order totest for cointegration among the series. Finally, the existence of cointegration set the estimation of VectorError-Correction Models (VECMs) to investigate the long-term links between the financial variables and the oilprices. The major findings of this paper include: first, the interaction between the oil prices and the stockmarkets is much stronger than with the interest rates in the short and in the long-run. Second, the impact on oilimporting countries is more significant than on oil exporting countries. Finally, it might be possible that thefluctuations in oil prices have different effects on developed and developing countries.
Highlights
Oil is one of the most important sources of energy in the world at present
The aim of this study was to analyse the influence of the oil price movements on the stock markets and the interest rates from 31 countries, including oil importing, oil exporting countries
Pairwise Granger Causality tests were conducted with the stationary series, in order to assess the degree of interaction between the variables
Summary
Equities are priced depending upon the market valuation according to the firms’ performances and based on the expected profits. Equity prices are the estimation of the profitability expected from an organization. Since oil might represent a significant input in the companies’ production processes (directly or indirectly) boosting the production costs (when the price increases) and decreasing the profits, oil price risks might be priced in the stock markets. There may be an important influence from oil shocks on the stock market that allows the forecast of equity prices, due to the fact that, even if oil is a significant input or an output in the organization, changes in its price will affect profits. Decreases and increases in oil prices may be used to predict increases and decreases in equity prices
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