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EJCE Year: 2016, June. Volume: 13 - Issue: 1

On the Time Varying Relationship between Oil Price and G7 Equity index: a Multivariate Approach

by Khaled Guesmi ; Zied Fiti ; Ilyes Abid ; Gazi Salah Uddin

Start page: 67 - End page: 79

Keywords: Oil Prices; Stock markets; Aggregate demand shocks; Precautionary demand

Jel code: C10; E44; G15

DOI: 10.25428/1824-2979/201601-67-79

Abstract:

The aim of this paper is to investigate the interaction between G7 stock markets and oil prices during the period 1998-2013. We employ a multivariate approach based on c-DCC-FIAPARCH framework that incorporates the features of asymmetries, persistence, that are typically observed in stock markets and oil prices. We show that the origin of oil price shock is the main driver of the relationship between stock and oil markets. More specifically, our results show, in one hand, that G7 equity market has a high correlation with oil market in the presence of aggregate demand oil price shocks (Asian crisis, housing market boom, Chinese growth, subprime crisis). In other hand, our results highlight that G7 equity market did not react to precautionary demand shocks (09/11 US terrorist attacks, and second Iraq war in 2003).

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