The European Journal of Comparative Economics

ISSN: 1824-2979

EJCE Year: 2020, December. Volume: 17 - Issue: 2

Oil price shocks, equity markets, and contagion effect in OECD countries

by Khaled Guesmi, Ilyes Abid, Anna Creti, Zied Ftiti

Start page: 155 - End page: 183

Keywords: Financialization, Conditional correlations, Segmented geographically, c-DCC-FIAPARCH model

Jel code: C10; E44; G15

DOI: 10.25428/1824-2979/202002-155-183

Abstract:

This paper revisits the dynamic linkages between the Brent oil market and OECD stock markets. Econometrically, we use a multivariate corrected dynamic conditional correlation fractionally integrated asymmetric power ARCH (c-DCC-FIAPARCH) process, controlling main financial time-series features such as asymmetry, volatility, and long memory. Based on daily data for 17 OECD stock markets from March 16, 1998 to February 23, 2018, we show three main findings. First, the impact of oil price shocks on the relationship between oil and stock markets is more pronounced during periods of global turmoil and asymmetric in all countries. Second, we do not observe a proper ‘contagion effect’ across all countries. Finally, this paper identifies five groups of countries based on the shape of the dynamic conditional correlation, which indicates that the relationship between oil and stock markets is segmented geographically. The findings have several policy implications.

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