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Economic Change and Restructuring

Erschienen in:

04.03.2023

Changes in oil price and economic policy uncertainty and the G7 stock returns: evidence from asymmetric quantile regression analysis

verfasst von: Salah A. Nusair, Jamal A. Al-Khasawneh

Erschienen in: Economic Change and Restructuring | Ausgabe 3/2023

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Abstract

This paper examines the asymmetric effects of changes in oil price and economic policy uncertainty (EPU) on the stock market returns of the G7 countries. It employs quantile regression analysis and allows for asymmetry by differentiating between positive and negative changes in oil price and EPU. Monthly data over the period 1985–2021 are used to conduct the analysis. Overall, we find that changes in oil price and EPU have significant asymmetric effects on the stock returns of the G7 countries and that these asymmetric effects are related to market conditions. An overall negative effect of EPU and a positive effect of oil price are observed on stock returns in all the countries. The results show that while rising EPU lowers stock returns in most countries during bearish and/or normal markets, falling EPU is either insignificant or increases stock returns only when stock markets are bullish. We also find that the impacts of positive changes in EPU are more important and larger than that of the negative changes. In addition, we find that stock returns in most countries are affected by rising and falling oil price when stock markets are bearish and/or bullish.

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This literature used these models or some other variants.

A positive change in a variable indicates that the variable is increasing, whereas a negative change indicates that the variable is falling.

More information on the index can be found at https://www.policyuncertainty.com/index.html.

Federal Reserve Bank of St. Louis, https://fred.stlouisfed.org/series/WTISPLC.

Bank of International Settlements, https://www.bis.org/statistics/eer.htm.

We applied Bai-Perron multiple breakpoint test to the relationship between the variables and the test showed no significant breaks for Canada and Italy, whereas it suggested one and two breaks in the other countries (around the 2007/08 US financial crisis). However, including these breaks in the different models did not produce significant differences. Therefore, the models are estimated without including these breaks. All unreported results are available upon request from the authors.

Results are not reported but available upon request from the authors.

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Titel: Changes in oil price and economic policy uncertainty and the G7 stock returns: evidence from asymmetric quantile regression analysis
verfasst von: Salah A. Nusair
Jamal A. Al-Khasawneh
Publikationsdatum: 04.03.2023
Verlag: Springer US
Erschienen in: Economic Change and Restructuring / Ausgabe 3/2023
Print ISSN: 1573-9414
Elektronische ISSN: 1574-0277
DOI: https://doi.org/10.1007/s10644-023-09494-9

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