Oil price uncertainty shocks and global equity markets : evidence from a GVAR model
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Date
Authors
Salisu, Afees A.
Gupta, Rangan
Demirer, Riza
Journal Title
Journal ISSN
Volume Title
Publisher
MDPI
Abstract
This paper examines the propagation of oil price uncertainty shocks to real equity prices
using a large-scale Global Vector Autoregressive (GVAR) model of 26 advanced and emerging stock
markets. The GVAR framework allows us to capture the transmission of local and global shocks,
while simultaneously accounting for individual-country peculiarities. Utilising a recently developed
model-free, robust estimate of oil price uncertainty, we document a statistically significant and
negative effect of uncertainty shocks emanating from oil prices on the large majority of global stock
markets, with the adverse effect of oil price uncertainty shocks found to be stronger for emerging
economies as well as net oil-exporting nations. Interestingly, however, global stock markets exhibit
a great deal of heterogeneity in their recovery following oil uncertainty shocks as some experience
rapid corrections in stock valuations while others suffer from extended slumps. While the results
are sensitive to the oil uncertainty measure utilised, they suggest that country diversification in the
face of rising oil market uncertainty can still be beneficial for global investors as global stock markets
exhibit a rather heterogeneous pattern in their recovery rates against oil market shocks.
Description
DATA AVAILABILITY STATEMENT : The GVAR data used for this study can be obtained from https://sites.
google.com/site/gvarmodelling/data, accessed on 17 July 2022. Data for the oil uncertainty index
which is not captured in the GVAR dataset can be obtained from https://sites.google.com/site/
nguyenhoaibao/oil-market-uncertainty?authuser=0, accessed on 17 July 2022.
Keywords
Oil price uncertainty shocks, International equity markets, Global vector autoregressive (GVAR)
Sustainable Development Goals
Citation
Salisu, Afees A., Rangan
Gupta, and Riza Demirer. 2022. Oil
Price Uncertainty Shocks and Global
Equity Markets: Evidence from a
GVAR Model. Journal of Risk and
Financial Management 15: 355.
https://doi.org/10.3390/jrfm15080355.