The Effect of Oil Price Shocks on the Stock Market Returns of Selected Oil Exporting Countries (Variable Parameter Regression Approach over Time)

Document Type : Scientific paper

Authors

1 Associated Professor of Economics, Department of Economics, University of Mazandaran, Babolsar, Iran

2 MSc in Economic Development and Planning, University of Mazandaran, Babolsar, Iran.

3 Faculty member

Abstract

The present study examines the effect of oil price shocks on the returns of selected stocks from oil-exporting countries using a two-stage method based on the structural vector auto-regression (SVAR) and time-varying parameter regression (TVP) models. The data used in this study were from Iran, UAE, Qatar, Saudi Arabia, Kuwait, Algeria, and Venezuela, which are OPEC member countries, as well as Russia, Mexico, and Bahrain, which are members of OPEC+, in the form of two monthly time series data, including oil market and stock market data, from 2000 to 2021. Oil prices have been studied by separating supply and demand shocks. The results report evidence of the time-varying response of stock market returns to different oil shocks (oil supply, aggregate demands, and demand shocks). It shows that stock returns react to demand shocks more than supply shocks. In addition, the effect of supply shocks on stock returns is negative and small, while the total demand shock has a positive effect on the stock market of the countries rather than Iran and Algeria. It also indicates that oil demand shocks positively affect countries like Russia, Qatar, and Mexico but are also less powerful than the total demand. At the same time, this shock has a negative effect at the beginning of the studied periods for countries like Algeria, UAE, Iran, and Saudi Arabia. It should be noted that it has no significant effect in other periods.

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References

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Macroeconomics Research Letter
Volume 18, Issue 38
December 2023
Pages 131-160

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History

  • Receive Date: 14 November 2023
  • Revise Date: 09 January 2024
  • Accept Date: 06 January 2024

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