Staff View: The impacts of COVID-19 crisis on spillovers between the oil and stock markets: Evidence from the largest oil importers and exporters

The impacts of COVID-19 crisis on spillovers between the oil and stock markets: Evidence from the largest oil importers and exporters

This study examines the multiscale spillovers and nonlinear causalities between the crude oil futures market and the stock markets of the United States (US), Canada, China, Russia, and Venezuela before and during the COVID-19 pandemic. Using the wavelet coherency method, we find strong co-movement b...

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Main Authors:	Ali, Syed Riaz Mahmood, Mensi, Walid, Anik, Kaysul Islam, Rahman, Mishkatur, Kang, Sang Hoon
Format:	Article
Published:	Elsevier 2022
Subjects:	HC Economic History and Conditions
Online Access:	http://eprints.um.edu.my/42043/
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spelling	my.um.eprints.420432023-10-19T07:53:30Z http://eprints.um.edu.my/42043/ The impacts of COVID-19 crisis on spillovers between the oil and stock markets: Evidence from the largest oil importers and exporters Ali, Syed Riaz Mahmood Mensi, Walid Anik, Kaysul Islam Rahman, Mishkatur Kang, Sang Hoon HC Economic History and Conditions This study examines the multiscale spillovers and nonlinear causalities between the crude oil futures market and the stock markets of the United States (US), Canada, China, Russia, and Venezuela before and during the COVID-19 pandemic. Using the wavelet coherency method, we find strong co-movement between the oil futures market and these five stock markets, particularly from March 2020 to May 2020 (initial period of the COVID-19 outbreak) at high frequency. Furthermore, we find positive co-movements at low frequency during the overall COVID-19 period. This finding suggests that the bearish trend of stock markets is associated with a downward movement in oil prices. Using the wavelet-based Granger causality approach, we find that the oil and stock indices have less co-movement on a smaller scale but greater movement on a larger scale across all periods. As an exception, the Russian market is significantly influenced by oil prices, even on a small scale, before the COVID-19 period, but not after the beginning of the pandemic. We also find effects in the opposite direction-the Canadian and U.S. markets influence oil prices on a small scale during the COVID-19 period, an effect that is not visible for the U.S. market in the pre-COVID-19 sample. The results also show a significant bidirectional causality from oil to stock markets and vice versa during Russian-Saudi oil price war at high scale. Furthermore, we find that investors should hold more oil futures than stock shares in their portfolios for all periods. This evidence confirms that oil instruments are important for hedging during normal periods and act as safe-haven assets during crisis periods. We observe that the U.S. and Canadian stock markets were more affected by oil price shocks than were other countries. (C) 2021 Economic Society of Australia, Queensland. Published by Elsevier B.V. All rights reserved. Elsevier 2022-03 Article PeerReviewed Ali, Syed Riaz Mahmood and Mensi, Walid and Anik, Kaysul Islam and Rahman, Mishkatur and Kang, Sang Hoon (2022) The impacts of COVID-19 crisis on spillovers between the oil and stock markets: Evidence from the largest oil importers and exporters. Economic Analysis and Policy, 73. pp. 345-372. ISSN 0313-5926, DOI https://doi.org/10.1016/j.eap.2021.11.009 <https://doi.org/10.1016/j.eap.2021.11.009>. 10.1016/j.eap.2021.11.009
institution	Universiti Malaya
building	UM Library
collection	Institutional Repository
continent	Asia
country	Malaysia
content_provider	Universiti Malaya
content_source	UM Research Repository
url_provider	http://eprints.um.edu.my/
topic	HC Economic History and Conditions
spellingShingle	HC Economic History and Conditions Ali, Syed Riaz Mahmood Mensi, Walid Anik, Kaysul Islam Rahman, Mishkatur Kang, Sang Hoon The impacts of COVID-19 crisis on spillovers between the oil and stock markets: Evidence from the largest oil importers and exporters
description	This study examines the multiscale spillovers and nonlinear causalities between the crude oil futures market and the stock markets of the United States (US), Canada, China, Russia, and Venezuela before and during the COVID-19 pandemic. Using the wavelet coherency method, we find strong co-movement between the oil futures market and these five stock markets, particularly from March 2020 to May 2020 (initial period of the COVID-19 outbreak) at high frequency. Furthermore, we find positive co-movements at low frequency during the overall COVID-19 period. This finding suggests that the bearish trend of stock markets is associated with a downward movement in oil prices. Using the wavelet-based Granger causality approach, we find that the oil and stock indices have less co-movement on a smaller scale but greater movement on a larger scale across all periods. As an exception, the Russian market is significantly influenced by oil prices, even on a small scale, before the COVID-19 period, but not after the beginning of the pandemic. We also find effects in the opposite direction-the Canadian and U.S. markets influence oil prices on a small scale during the COVID-19 period, an effect that is not visible for the U.S. market in the pre-COVID-19 sample. The results also show a significant bidirectional causality from oil to stock markets and vice versa during Russian-Saudi oil price war at high scale. Furthermore, we find that investors should hold more oil futures than stock shares in their portfolios for all periods. This evidence confirms that oil instruments are important for hedging during normal periods and act as safe-haven assets during crisis periods. We observe that the U.S. and Canadian stock markets were more affected by oil price shocks than were other countries. (C) 2021 Economic Society of Australia, Queensland. Published by Elsevier B.V. All rights reserved.
format	Article
author	Ali, Syed Riaz Mahmood Mensi, Walid Anik, Kaysul Islam Rahman, Mishkatur Kang, Sang Hoon
author_facet	Ali, Syed Riaz Mahmood Mensi, Walid Anik, Kaysul Islam Rahman, Mishkatur Kang, Sang Hoon
author_sort	Ali, Syed Riaz Mahmood
title	The impacts of COVID-19 crisis on spillovers between the oil and stock markets: Evidence from the largest oil importers and exporters
title_short	The impacts of COVID-19 crisis on spillovers between the oil and stock markets: Evidence from the largest oil importers and exporters
title_full	The impacts of COVID-19 crisis on spillovers between the oil and stock markets: Evidence from the largest oil importers and exporters
title_fullStr	The impacts of COVID-19 crisis on spillovers between the oil and stock markets: Evidence from the largest oil importers and exporters
title_full_unstemmed	The impacts of COVID-19 crisis on spillovers between the oil and stock markets: Evidence from the largest oil importers and exporters
title_sort	impacts of covid-19 crisis on spillovers between the oil and stock markets: evidence from the largest oil importers and exporters
publisher	Elsevier
publishDate	2022
url	http://eprints.um.edu.my/42043/
_version_	1781704587720261632
score	13.211869

The impacts of COVID-19 crisis on spillovers between the oil and stock markets: Evidence from the largest oil importers and exporters

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