A Markov switching approach in assessing oil price and stock market nexus in the last decade: The impact of the COVID-19 pandemic
Document Type
Article
Publication Date
1-1-2023
Abstract
We revisit the oil price and stock market nexus by considering the impact of major economic shocks in the post-global financial crisis (GFC) scenario. Our breakpoint unit root test and Markov switching regression (MRS) analyses using West Texas Intermediate (WTI) oil price and Standard & Poor's 500 (S&P 500) market index show that among the major economic events, the recent coronavirus (COVID-19) pandemic is the most significant contributor to market volatilities. Furthermore, our MRS results show that the relationship between oil price and the stock market is regime-dependent; the stock market experiences substantial and positive shocks in a volatile oil price regime. Our results provide valuable insights to investors and policymakers regarding risk management and financial market stability during economic crisis periods, specifically during the COVID-19 pandemic.
Keywords
Oil price, Stock price, Breakpoint unit root test, Markov switching model, COVID-19
Divisions
Faculty_of_Business_and_Accountancy,deptdecision
Publication Title
SAGE Open
Volume
13
Issue
1
Publisher Location
2455 TELLER RD, THOUSAND OAKS, CA 91320 USA