Effects of oil price shocks on the stock market performance: Do nature of shocks and economies matter?

- It examines how oil price fluctuations impact stock markets in three economies.
- No causality is found between oil prices and stock markets at the 5% level.
- The effects of oil price shocks on stock market were shown to be not always similar.
- Oil characteristics of an economy and the nature of the shock in oil prices matter.

The main focus of this study is to examine how oil price fluctuations influence the performance of stock markets. This study used the causality approach developed by Toda and Yamamoto (1995) to explore the causality between oil prices and stock prices in the long-run and their short-term impact. The generalized impulse response functions were applied to the monthly data in the period from January 1997 to July 2013. In this study, to capture the different characteristics of oil refining, exporting and importing, three Asian economies were examined. The results indicate that the manner in which a market reacts to hikes in oil prices varies between different markets and periods. This depends on differences in the oil characteristics of the economy and the nature of the shock in oil prices.