TY - JOUR
T1 - Different strokes for different folks: The case of oil shocks and emerging equity markets
AU - Raheem, Ibrahim D.
PY - 2022/4
Y1 - 2022/4
N2 - This study examines the relationship between oil shocks and stock returns. Taking a cue from Ready (2018), oil price is decomposed into demand, supply, and risk shocks. Building a dataset for emerging markets, we examine the extent to which oil shocks could accurately make in- and out-of-sample forecasts on stock returns. Three striking results emanate from our analyses. First, the three types of shock are significant determinants of stock returns in the selected countries. Second, the shocks are able to accurately make out-of-sample forecasts for all the countries across the forecasting horizon. Third, accounting for asymmetry in the shocks provided mixed results; essentially, we show that asymmetry and symmetry models provide opposing results. In all, the forecasting power of oil shocks is heterogeneous across countries, as the exact effect is dependent on: (i) the types of shock, (ii) countries and (iii) symmetry or asymmetry model. These results have important policy implications.
AB - This study examines the relationship between oil shocks and stock returns. Taking a cue from Ready (2018), oil price is decomposed into demand, supply, and risk shocks. Building a dataset for emerging markets, we examine the extent to which oil shocks could accurately make in- and out-of-sample forecasts on stock returns. Three striking results emanate from our analyses. First, the three types of shock are significant determinants of stock returns in the selected countries. Second, the shocks are able to accurately make out-of-sample forecasts for all the countries across the forecasting horizon. Third, accounting for asymmetry in the shocks provided mixed results; essentially, we show that asymmetry and symmetry models provide opposing results. In all, the forecasting power of oil shocks is heterogeneous across countries, as the exact effect is dependent on: (i) the types of shock, (ii) countries and (iii) symmetry or asymmetry model. These results have important policy implications.
KW - Asymmetry
KW - Emerging markets
KW - Forecasting
KW - Oil shock
UR - http://www.scopus.com/inward/record.url?scp=85125646019&partnerID=8YFLogxK
U2 - 10.1016/j.eneco.2022.105897
DO - 10.1016/j.eneco.2022.105897
M3 - Article
SN - 0140-9883
VL - 108
JO - Energy Economics
JF - Energy Economics
M1 - 105897
ER -