Oil prices and stock markets: Does the effect of uncertainty change over time?

This paper investigates empirical marginal effects of uncertainty measured by conditional variance of the stock and crude oil prices on their returns using stock index prices for U.S., Japan, Korea, and Hong Kong over the period 1996-2015. A time-varying parameter model with a dynamic conditional correlation (DCC) bivariate GARCH-in-Mean specification is considered to investigate time-varying marginal effects of uncertainty on the stock and crude oil returns. The empirical findings show that there exist significant negative time-varying effects of uncertainty on the returns over some sub-periods.