Time-varying co-movements between stock market returns and oil price shocks

Abstract

This paper investigates the time-varying co-movements between stock market returns and oil price shocks, for both oil-importing and oil-exporting countries. To achieve this, we use data from 1998 until 2013 and employ a Scalar-BEKK model. Our findings are as follows: (i) the correlation between oil price shocks and index returns are showing some differences depending on whether a country is oil-importer or oil-exporter, (ii) the correlations are industry-specific and shock-specific, (iii) the aggregate demand shocks generate moderate positive correlations with stock market returns until 2011, (iv) stock market index returns have low to zero correlation with the supply-side shocks and (v) oil specific demand shocks have a moderate positive correlation with all indices in the post-2006 period. Our results have important implication for investor, as well as, policy makers.