Oil and BRIC Stock Markets before and after COVID-19: A Local Gaussian Correlation Approach

ABSTRACT

This paper investigates interdependence and contagion between oil and BRIC stock markets before and after COVID-19. We used a local Gaussian correlation approach to identify the asymmetric relationship and a bootstrap method to test contagion. The empirical results show that, except for China, the linkages between the crude oil markets and BRIC stock markets significantly increased in crashing markets during the COVID-19 pandemic. Contagion is identified from crude oil markets to the Indian stock market, and from West Texas Intermediate (WTI) futures to the Russian stock market.

KEYWORDS:

• Crude oil
• stock market
• local Gaussian correlation
• contagion

JEL CLASSIFICATION:

• Q40
• C12
• C22
• G40
• O13
• P13

Supplemental data

Supplemental data for this article can be accessed on the publisher’s website.

Acknowledgments

The first two authors contributed equally to this work. We thank the editors and two anonymous reviewers for their helpful comments.

Disclosure statement

The authors declare that the research was conducted in the absence of any commercial or financial relationships that could be construed as a potential conflict of interest.

Notes

1. Source: World Bank. GDP measured at purchasing power parity.

2. For more details, see Tjøstheim and Hufthammer (2013).

3. The diagnostic tests (Ljung-Box and BDS) of all the ARMA-GARCH filtering models for both periods are presented on Tables A1 and A2 in the Appendix A.

4. The range of [−2, 2] is selected according to Figures A1–A4, which are the causal observation of the scatterplots between the crude oil markets and the BRIC stock markets. Figures A1–A4 in the Appendix A suggest that there are very few observations exceeding −2 or 2.

Additional information

Funding

The paper is supported by the The National Social Science Foundation of China [15CTJ010 and 18BGL070]; the National Natural Science Foundation of China [Grant No. 11771133]; and The Shandong Social Science Planning Project [Grant No. 15CJJJ17].