Oil Prices, Exchange Rates and Emerging Stock Markets

39 Pages Posted: 28 May 2011

See all articles by Syed Abul Basher

Syed Abul Basher

East West University

Alfred A. Haug

University of Otago - School of Business - Department of Economics

Perry Sadorsky

York University - Schulich School of Business

Date Written: April 5, 2011

Abstract

While two different streams of literature exist investigating 1) the relationship between oil prices and emerging market stock prices and 2) the relationship between oil prices and exchange rates, relatively little is known about the dynamic relationship between oil prices, exchange rates and emerging market stock prices. This paper proposes and estimates a structural vector autoregression model to investigate the dynamic relationship between these variables. Impulse responses are calculated in two ways (standard and projection based methods). The model supports stylized facts. In particular, positive shocks to oil prices tend to depress emerging market stock prices and US dollar exchange rates in the short run. The model also captures stylized facts regarding movements in oil prices. A positive oil production shock lowers oil prices while a positive shock to real economic activity increases oil prices. There is also evidence that increases in emerging market stock prices increases oil prices.

Keywords: emerging market stock prices, oil prices, exchange rates

JEL Classification: G15, Q43

Suggested Citation

Basher, Syed Abul and Haug, Alfred A. and Sadorsky, Perry, Oil Prices, Exchange Rates and Emerging Stock Markets (April 5, 2011). Available at SSRN: https://ssrn.com/abstract=1852828 or http://dx.doi.org/10.2139/ssrn.1852828

Syed Abul Basher

East West University ( email )

Aftabnagar Main Road
Plot No. A-2
Dhaka, 1219
Bangladesh

HOME PAGE: http://syedbasher.org

Alfred A. Haug (Contact Author)

University of Otago - School of Business - Department of Economics ( email )

PO Box 56
Dunedin
New Zealand

Perry Sadorsky

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

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