OIL PRICES, ECONOMIC POLICY UNCERTAINTY AND STOCK MARKET RETURNS IN OIL IMPORTING COUNTRIES: THE IMPACT OF COVID-19 PANDEMIC

Yıl 2022, Cilt: 40 Sayı: 1, 144 - 163, 31.03.2022

Çiğdem Kurt Cihangir , Şahnaz Koçoğlu

https://doi.org/10.17065/huniibf.933167

Cited By: 2

Öz

This study examines the nexus between oil prices, economic policy uncertainty and stock markets in a panel of selected major oil importing countries between June 2014 and October 2020. We analyzed China, India, Germany, Italy and Japan in the study because these countries are among the largest oil importer countries in the economic policy uncertainty index developed by Economics Policy Uncertainty Platform. We split the period into three sub-periods as June 2014- February 2016, March 2016-December 2019 and January - October 2020 and employed several econometric models to analyze the relation between the variables in different economic conditions and to identify how COVID-19 pandemic has influenced the effect of oil prices and economic policy uncertainty on the stock markets. Empirical results show that the pandemic changed the dynamics of the relations between the variables and especially the effect of oil prices on the stock markets has grown stronger for the oil importing countries.

Anahtar Kelimeler

Oil Prices, Economic Policy Uncertainty Index, Stock markets, ARDL, COVID-19

Kaynakça

• Aloui, R., Gupta, R., & Miller, S.M. (2016). Uncertainty and crude oil returns. Energy Economics, 55, 92-100. https://doi.org/10.1016/j.eneco.2016.01.012 Antonakakis, N., Chatziantoniou, I., & Filis, G. (2014). Dynamic spillovers of oil price shocks and economic policy uncertainty. Energy Economics, 44, 433-447. https://doi.org/10.1016/j.eneco.2014.05.007
• Apergis, N., & Miller, S.M. (2009). Do structural oil-market shocks affect stock prices? Energy Economics, 31, 569-575. https://doi.org/10.1016/j.eneco.2009.03.001
• Arora, V., & Lieskovsky, J. (2014). Natural gas and U.S. economic activity. The Energy Journal, 35(3), 167–182. https://doi.org/10.5547/01956574.35.3.8
• Arouri, M. E. H., & Nguyen, D. K. (2010). Oil prices, stock markets and portfolio investment: Evidence from sector analysis in Europe over the last decade. Energy Policy, 38(8), 4528-4539. https://doi.org/10.1016/j.enpol.2010.04.007
• Arouri, M., & Roubaud, D. (2016). On the determinants of stock market dynamics in emerging countries: The role of economic policy uncertainty in China and India. Economics Bulletin, 36(2), 760-770. http://www.accessecon.com/Pubs/EB/2016/Volume36/EB-16-V36-I2-P74.pdf
• Backus, D., & Crucini, M. (2000). Oil prices and the terms of trade. Journal of International Economics, 50(1), 185-213. https://doi.org/10.1016/S0022-1996(98)00064-6
• Baker, S. R., Bloom, N., Davis, S. J., Kost, K., Sammon, M., & Viratyosin, T. (2020). The unprecedented stock market reaction to COVID-19. The Review of Asset Pricing Studies, 10(4), 742–758. https://doi.org/10.1093/rapstu/raaa008
• Baker, S. R., Bloom, N., Davis, S. J. (2016). Measuring economic policy uncertainty. The Quarterly Journal of Economics, 131 (4), 1593-1636. https://doi.org/10.1093/qje/qjw024 Balcilar, M., Bekiros, S., & Gupta, R. (2016). The role of news-based uncertainty indices in predicting oil markets: A hybrid nonparametric quantile causality method. Empirical Economics, 49, 1-11. http://dx.doi.org/10.1007/s00181-016-1150-0
• Bjørnland, H. C. (2009). Oil price shocks and stock market booms in an oil exporting country. Scottish Journal of Political Economy, 56(2), 232-254. https://doi.org/10.1111/j.1467-9485.2009.00482.x
• Bloom, N. (2009). The impact of uncertainty shocks. Econometrica, 77(3), 623-685. https://doi.org/10.3982/ECTA6248
• Bouoiyour, J., Selmi, R., Shahzad, S. J. H., & Shahbaz, M. (2017). Response of stock returns to oil price shocks: Evidence from oil importing and exporting countries. Journal of Economic Integration, 33(4), 913-936. http://dx.doi.org/10.11130/jei.2017.32.4.913
• Breitung, J. (2000). The local power of some unit root tests for panel data, in: B. Baltagi (ed.), Nonstationary Panels, Panel Cointegration, and Dynamic Panels, Advances in Econometrics, 15, 161-178. https://doi.org/10.1016/S0731-9053(00)15006-6
• Brogaard J., & Detzel, A. (2015). The asset pricing implications of government economic policy uncertainty. Management Science, 61(1), 3–18. https://doi.org/10.1287/mnsc.2014.2044
• Brown, S. P., & Yücel, M. K. (2002). Energy prices and aggregate economic activity: An interpretative survey. The Quarterly Review of Economics and Finance, 42(2), 193-208. https://doi.org/10.1016/S1062-9769(02)00138-2
• Calvo, G. (2008). Exploding commodity prices, lax monetary policy, and sovereign wealth funds. Retrieved October 10, 2020 from https://voxeu.org/article/exploding-commodity-prices-signal-future-inflation
• Chang T., Chen W. Y., Gupta R., & Nguyen D. K. (2015). Are stock prices related to political uncertainty index in OECD countries? Evidence from Bootstrap Panel Causality Test. Economic Systems, 39(2), 288-300. https://doi.org/10.1016/j.ecosys.2014.10.005
• Choi, I. (2001). Unit root tests for panel data. Journal of International Money and Finance, 20(2), 249-272. https://doi.org/10.1016/S0261-5606(00)00048-6
• Chuku, C., Effiong, E., & Sam, N. (2010). Oil price distortions and their short- and long-run impacts on the Nigerian economy. MPRA Paper No. 24434. Retrieved October 2, 2020 from https://mpra.ub.uni-muenchen.de/id/eprint/24434
• Degiannakis, S., Filis, G., & Arora, V. (2017). Oil prices and stock markets. U.S. Energy Information Administration. Working Paper. Retrieved September 2, 2020 from https://www.eia.gov/workingpapers/pdf/oil_prices_stockmarkets.pdf
• Driesprong, G., Jacobsen, B., & Maat, B. (2008). Striking oil: another puzzle? Journal of Financial Economics, 89(2), 307-327. https://doi.org/10.1016/j.jfineco.2007.07.008
• Economic Policy Unertainty (2020). Economic policy uncertainty index. Retrieved October 5, from https://www.policyuncertainty.com/
• Ellwanger, R., Sawatzky, B., & Zmitrowicz, K. (2017). Factors behind the 2014 oil price decline. Bank of Canada Review (Autumn), 1-13.
• Fantazzini, D. (2016). The oil price crash in 2014/15: Was there a (negative) financial bubble? Energy Policy, 96, 383-396. https://doi.org/10.1016/j.enpol.2016.06.020
• Filis, G. (2010). Macro economy, stock market and oil prices: Do meaningful relationships exist among their cyclical fluctuations? Energy Economics, 32(4), 877-886. https://doi.org/10.1016/j.eneco.2010.03.010
• Frankel, J. A. (2006). The effect of monetary policy on real commodity prices. Working Paper 12713, National Bureau of Economic Research. Retrieved October 5, from https://www.nber.org/system/files/chapters/c5374/c5374.pdf
• Granger, C. W. (1969). Investigating causal relations by econometric models and cross-spectral methods. Econometrica: Journal of the Econometric Society, 37(3), 424-438.
• Gürsoy, S. (2021a). Küresel ekonomik politik belirsizliğin (gepu) döviz kuru, enflasyon ve borsa etkisi: Türkiye’den kanıtlar. Türkiye Mesleki ve Sosyal Bilimler Dergisi, 5, 120-131.
• Gürsoy, S. (2021b). Analysis of the energy prices and geopolitical risk relationship. Uluslararası Ekonomi Siyaset İnsan ve Toplum Bilimleri Dergisi, 4(2), 69-80.
• Hamilton, J. D., & Wu, J. C. (2015). Effects of index-fund investing on commodity futures prices. International Economic Review, 56(1), 187-205. https://doi.org/10.1111/iere.12099
• Hatemi-J, A., Sahayeb, A. A., & Roca, E. (2016). The effect of oil prices on stock prices: Fresh evidence from asymmetric causality tests. Applied Economics, 49(16), 1-9. https://doi.org/10.1080/00036846.2016.1221045
• He, Q., Liu, J., Wang, S., &Yu, J. (2020). The impact of COVID-19 on stock markets. Economic and Political Studies, 8(3), 275-288. https://doi.org/10.1080/20954816.2020.1757570
• Huang, R. D., Masulis, R. W., & Stoll, H. R. (1996). Energy shocks and financial markets. The Journal of Futures Markets, 16(1), 1-27. https://doi.org/10.1002/(SICI)1096-9934(199602)16:1%3C1::AID-FUT1%3E3.0.CO;2-Q
• Investing.com (2020). Stock market indices. Retrieved October 10, 2020 from https://www.investing.com.
• Jiménez-Rodríguez, R., & Sánchez, M. (2005). Oil price shocks and real GDP growth: Empirical evidence for some OECD countries. Applied Economics, 37(2), 201-228. https://doi.org/10.1080/0003684042000281561
• Jones, C. M., & Kaul, G. (1996). Oil and the stock markets. The Journal of Finance, 51(2), 463- 491. https://doi.org/10.1111/j.1540-6261.1996.tb02691.x
• Kang, W., & Ratti, R. A. (2013). Oil shocks, policy uncertainty and stock market return. Journal of International Financial Markets, Institutions and Money, 26, 305–318. https://doi.org/10.1016/j.intfin.2013.07.001
• Kang, W., Lee, K., & Ratti, R. A. (2014). Economic policy uncertainty and firm-level investment. Journal of Macroeconomics, 39 (Part A), 42–53. https://doi.org/10.1016/j.jmacro.2013.10.006
• Khan, M. I. (2017). Falling oil prices: Causes, consequences and policy implications. Journal of Petroleum Science and Engineering, 149, 409-427. https://doi.org/10.1016/j.petrol.2016.10.048
• Kilian, L., & Park, C. (2009). The impact of oil price shocks on the US stock market. International Economic Review, 50, 1267-1287. https://doi.org/10.1111/j.1468-2354.2009.00568.x
• Kilian, L. (2008). The economic effects of energy price shocks. Journal of Economic Literature, 46(4), 871–909. https://doi.org/10.1257/jel.46.4.871
• Kilian, L. (2009). Not all oil price shocks are alike: Disentangling demand and supply shocks in the crude oil market. American Economic Review, 99(3), 1053-69. https://doi.org/10.1257/aer.99.3.1053
• Kilian, L., & Hicks, B. (2013). Did unexpectedly strong economic growth cause the oil price shock of 2003–2008? Journal of Forecasting, 32(5), 385-394. http://dx.doi.org/10.1002/for.2243
• Levin, A., Lin, C. F., & Chu, C. S. J. (2002). Unit root tests in panel data: A symptotic and finite-sample properties. Journal of econometrics, 108(1), 1-24. https://doi.org/10.1016/S0304-4076(01)00098-7
• Liu, L., & Zhang, T. (2015). Economic policy uncertainty and stock market volatility. Finance Research Letters, 15, 99-105. https://doi.org/10.1016/j.frl.2015.08.009
• Maddala, G. S., & Wu, S. (1999). A comparative study of unit root tests with panel data and a new simple test. Oxford Bulletin of Economics and Statistics, 61(S1), 631-652.
• Miller, J. I., & Ratti, R. A. (2009). Crude oil and stock markets: Stability, instability, and bubbles. Energy Economics, 31(4), 559-568. https://doi.org/10.1016/j.eneco.2009.01.009
• Mohanty, S. K., Nandha, M., Turkistani, A. Q., & Alaitani, M. Y. (2011). Oil price movements and stock market returns: Evidence from Gulf Cooperation Council (GCC) countries. Global Finance Journal, 22, 42-55. https://doi.org/10.1016/j.gfj.2011.05.004
• Narayan, P. K., & Narayan, S. (2010). Modelling the impact of oil prices on Vietnam’s stock prices. Applied Energy, 87(1), 356-361. https://doi.org/10.1016/j.apenergy.2009.05.037
• Oberndorfer, U. (2009). Energy prices, volatility, and the stock market: Evidence from the Eurozone. Energy Policy, 37(12), 5787-5795. https://doi.org/10.1016/j.enpol.2009.08.043
• Okorie, D. I., & Lin, B. (2020). Crude oil price and cryptocurrencies: Evidence of volatility connectedness and hedging strategy. Energy Economics, 87, 1-10. https://doi.org/10.1016/j.eneco.2020.104703
• O'Neill, J.T., Penm, J., & Terrell, D.R. (2008). The role of higher oil prices: A case of major developed countries. Research in Finance, 24, 287-299. https://doi.org/10.1016/S0196-3821(07)00211-0 Pastor, L., & Veronesi, P. (2013). Political uncertainty and risk premia. Journal of Financial Economics, 110 (3), 520-545. https://doi.org/10.1016/j.jfineco.2013.08.007
• Pedroni, P. (1996). Fully modified OLS for heterogeneous cointegrated panels and the case of purchasing power parity. Indiana University working papers in Economics, No. 96–020. https://cae.economics.cornell.edu/panel-fm.pdf
• Pesaran, M. H., Shin, Y., & Smith, R. P. (1999). Pooled mean group estimation of dynamic heterogeneous panels. Journal of the American statistical Association, 94(446), 621-634. https://doi.org/10.2307/2670182
• Phan, D. H. B., & Narayan, P. K. (2020). Country responses and the reaction of the stock market to COVID-19—A preliminary exposition. Emerging Markets Finance and Trade, 56(10), 2138-2150. https://doi.org/10.1080/1540496X.2020.1784719
• Phan, D.H.B., Sharma, S.S., & Tran, V.T. (2018). Can economic policy uncertainty predict stock returns? Global evidence. Journal of International Financial Markets, Institutions and Money, 55, 134-150 https://doi.org/10.1016/j.intfin.2018.04.004
• Prest, B. C. (2018). Explanations for the 2014 oil price decline: Supply or demand? Energy Economics, 74, 63-75. https://doi.org/10.1016/j.eneco.2018.05.029
• Qadan, M., & Nama, H. (2018). Investor sentiment and the price of oil. Energy Economics, 69, 42–58. https://doi.org/10.1016/j.eneco.2017.10.035
• Sadorsky, P. (1999). Oil price shocks and stock market activity. Energy Economics, 21(5), 449-469. https://doi.org/10.1016/S0140-9883(99)00020-1
• Salisu, A. A., Ebuh, G. U., & Usman, N. (2020). Revisiting oil-stock nexus during COVID-19 pandemic: Some preliminary results. International Review of Economics & Finance, 69, 280-294. https://doi.org/10.1016/j.iref.2020.06.023
• Sharif, A., Aloui, C., & Yarovaya, L. (2020). COVID-19 pandemic, oil prices, stock market, geopolitical risk and policy uncertainty nexus in the US economy: Fresh evidence from the wavelet-based approach. International Review of Financial Analysis, 70, 1-9. https://doi.org/10.1016/j.irfa.2020.101496
• Silvapulle, P., Smyth, R., Zhang, X., & Fenech, J. P. (2017). Nonparametric panel data model for crude oil and stock prices in net oil importing countries. Energy Economics, 67, 255-267. https://doi.org/10.1016/j.eneco.2017.08.017
• Smyth, R., & Narayan, P. K. (2018). What do we know about oil prices and stock returns. International Review of Financial Analysis, 57, 148-156. https://doi.org/10.1016/j.irfa.2018.03.010
• Sum, V. (2012), Economic policy uncertainty and stock market returns, Available at SSRN: Retrieved October 22, 2020 from https://ssrn.com/abstract=2073184
• Tsai, I.C. (2017). The source of global stock market risk: A viewpoint of economic policy uncertainty. Economic Modelling, 60, 122-131. https://doi.org/10.1016/j.econmod.2016.09.002
• Wang, Y., Chen, C. R., & Huang, Y. S. (2014). Economic policy uncertainty and corporate investment: Evidence from China. Pacific-Basin Finance Journal, 26, 227–243. https://doi.org/10.1016/j.pacfin.2013.12.008
• Wei, Y., Liu, J., Lai, X., & Hu, Y. (2017). Which determinant is the most informative in forecasting crude oil market volatility: Fundamental speculation or uncertainty? Energy Economics, 68, 141–150. https://doi.org/10.1016/j.eneco.2017.09.016
• Zhang, B. (2019). Economic policy uncertainty and investor sentiment: Linear and nonlinear causality analysis. Applied Economics Letters, 26(15), 1264–1268. https://doi.org/10.1080/13504851.2018.1545073
• Zhu, H.M., Guo, Y., You, Y., & Xu, Y. (2016). The heterogeneity dependence between crude oil price changes and industry stock market returns in China: Evidence from a quantile regression approach. Energy Economics, 55, 30-41. https://doi.org/10.1016/j.eneco.2015.12.027