Interrelationship between crude oil and the stock markets of major demanders and suppliers in emerging and developed markets

ABSTRACT

This paper investigates the time-varying relationship between the stock markets of advanced and emerging oil-exporting and oil-importing countries and the international crude oil price indices. The results reveal that the time-varying among the oil-exporting and oil-importing countries responds similarly to aggregate supply- and demand-side effects. Oil-exporting countries have a slightly higher integration with the oil markets, while oil supply shocks have a slightly higher impact on emerging oil-exporting countries. The oil markets exhibit a lower time-varying relationship with the Asia-Pacific oil-importing markets, which indicates those markets may be attractive to investors during periods of turbulence in the oil market.

KEYWORDS:

• Emerging oil exporting/importing
• advanced oil exporting/importing
• time-varying
• oil supply glut

JEL CLASSIFICATION:

• G15
• Q40
• Q43

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

¹ This is in line with the study by Kose, Prasad, and Terrones (2006), who found that most of the emerging economies that have undergone significant financial integration experienced growth at the cost of severe financial crises.

² South Korea is classified as a high-income country by the World Bank’s development indicators as well as by some other credible organizations.

³ We have selected the major oil-importing and oil-exporting countries from the top twenty provided by Workman (2017), while the USA is within the top twenty oil-exporting/importing countries.

⁴ For more detail on the timeline for the oil price shock and related events, see Kilian (2009). In addition to this, the GARCH-DCC models for the full sample, reveals that oil supply shocks have a slightly higher impact on emerging oil-exporting countries. The DCC table is not presented to save the space but available upon request.