Stock Market Returns And Crude Oil Price Changes

This study examines the effect of crude oil and stock market dynamics in a sample of oil-exporting and oil-importing countries at different stages of development. This relationship is also explored in a sample of world equity indices, such as MSCI ACWI, MSCI World, MSCI EAFE, MSCI Emerging Markets, MSCI Europe, and MSCI USA. Particular emphasis is placed on the role of financial distress, as reflected by National Bureau of Economic Research (NBER) recession episodes. The empirical findings show that the Ordinary Least Squares (OLS) approach and a Quantile Regression (QR) approach produce relatively similar results. However, the QR approach is found to offer a greater insight into the relationship between crude oil price changes and stock returns, as it is a more robust and efficient estimator compared to the OLS. For example, the OLS results fail to identify any significant impact of crude oil price changes on stock returns for several oil-exporting countries, irrespective of whether the relationship was negative (Ecuador, Iraq, Mexico, and Venezuela) or positive (Algeria and Brazil). In contrast, the QR approach is able to identify specific quantiles for which crude oil price changes have a significant impact on stock returns, even if the relationship is insignificant at the level of the mean.