The effect of oil market shocks on the stock markets: Time-varying asymmetric causal relationship for conventional and Islamic stock markets

• Main Authors: Vedat Ender Tuna, Gülfen Tuna, Nurcan Kostak
• Format: Article
• Language: English
• Published: Elsevier 2021-11-01
• Series: Energy Reports
• Subjects: Oil prices; Stock market; Asymmetric causality; Time-varying causality; Islamic stock markets
• Online Access: http://www.sciencedirect.com/science/article/pii/S2352484721002754

The causality between stock and oil prices is investigated for both conventional and Islamic stock markets in this study. The data set used in the study is 4338 daily closing prices between the 31st of December 2002 and the 27th of July 2020. Both classical and time-varying forms of Hatemi-J (2012) asymmetric causality test have been used as the research method. The analyses were applied for all sector indices (Basic Materials, Consumer Goods, Consumer Services, Financials, Health Care, Industrials, Oil and Gas, Technology, Telecommunication, and Utilities sub-sector indices), both for traditional and Islamic stock markets. There is causality in conventional (except positive shocks for telecommunications) and Islamic stock markets (except negative shocks for financials, positive and negative shocks for technology and all sectors) for both positive and negative shocks according to Hatemi-J (2012) asymmetric causality test. However, according to time-varying asymmetric causality test results, there is no steady causality in positive shocks, although there is causality for most of the sub-sample periods in negative shocks. This favors the result that oil prices can be an efficient performance indicator in conventional and Islamic stock markets when utilized as a significant estimator in a decreasing market.