Revisiting the oil price and stock market nexus: A nonlinear Panel ARDL approach

By Afees A. Salisu, Kazeem O. Isah. Economic Modelling, 2017

305 citations recorded by the source corpus.

Abstract In this paper, we re-examine the relationship between oil price and stock prices in oil exporting and oil importing countries in the following distinct ways. First, we account for possible nonlinearities in the relationship in order to quantify the asymmetric response of stock prices of these two categories to positive and negative oil price changes. Secondly, in order to capture within group differences, we allow for heterogeneity effect in the cross-sections by formulating a nonlinear Panel ARDL model which is the panel data representation of the Shin et al. (2014) model and also analogous to the non-stationary heterogenous panel data model. Thirdly, we evaluate the relative predictability of the linear (symmetric) and nonlinear (asymmetric) Panel ARDL models using the Campbell and Thompson (2008) test. Our results depict that stock prices of both oil exporting and oil importing groups respond asymmetrically to changes in oil price although the response is stronger in the latter than the former. This finding is further corroborated by the out-of-sample forecast results suggesting that the inclusion of positive and negative oil price changes in the predictive model for stock prices will produce better forecast results only for the oil importing countries. Our results are robust to different oil price proxies, lag structure and in-sample periods. Overall, the dichotomy between oil exporting and oil importing countries has implications on oil price-stock nexus.

Subfields: Economics and Econometrics, Renewable Energy, Sustainability and the Environment

View Paper: https://www.semanticscholar.org/paper/81fdabad5415e6f84c46d47926d1b3346c077a22

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Citations in the corpus

Does the inflow of remittances cause environmental degradation? Empirical evidence from China (2019, background): “These studies include (Alsamara et al., 2017; Bagnai & Ospina 2016; Elafif et al., 2017; Mamun et al., 2016; Pal & Mitra 2015, 2016; Salisu & Isah 2017; Shin et al., 2018).”
Oil Prices and Stock Markets: A Review of the Theory and Empirical Evidence (2018, background): “The literature also tries to identify whether oil prices exercise asymmetric effects on stock market returns (see, inter alia , Salisu and Isah, 2017; Jiménez-Rodríguez, 2015; Broadstock et al., 2014; Chen, 2010; Cong et al., 2008; Park and Ratti, 2008) 7 .”