Oil Price Shocks, Global Financial Markets and Their Connectedness

37 Pages Posted: 21 Feb 2020 Last revised: 20 Apr 2020

See all articles by Riza Demirer

Riza Demirer

Southern Illinois University Edwardsville - Department of Economics & Finance; Economic Research Forum (ERF)

Roman Ferrer Lapeña

Faculty of Economics. University of Valencia

Syed Jawad Hussain Shahzad

Montpellier Business School

Date Written: April 17, 2020

Abstract

This paper extends the literature on the relationship between oil price shocks and financial markets by examining the effect of oil shocks on the sovereign bond markets of a large number of advanced and emerging economies and exploring the impact of oil shocks on the degree of connectedness among international financial markets. We show that the effect of oil price shocks is not only limited to stock market returns, but also extends to bond markets, even after controlling for discount rate shocks as well as aggregate capital market effects. Unlike the case for stock markets, the effect on sovereign bonds is found to be rather heterogeneous (in terms of size and sign) and primarily driven by demand related shocks. We also show that oil price shocks serve as a driver of connectedness patterns across global financial markets, although the effect on connectedness depends on the nature of the oil market shock and the economic characteristics of the countries. Overall, the findings highlight the role of crude oil as a driver of not only of return dynamics in global stock and bond markets, but also of global financial connectedness patterns.

Keywords: Crude oil, Stock market, Government bond market, oil price shocks, connectedness

JEL Classification: C22, G12, Q40

Suggested Citation

Demirer, Riza and Ferrer Lapeña, Roman and Hussain Shahzad, Syed Jawad, Oil Price Shocks, Global Financial Markets and Their Connectedness (April 17, 2020). Energy Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3394320 or http://dx.doi.org/10.2139/ssrn.3394320

Riza Demirer (Contact Author)

Southern Illinois University Edwardsville - Department of Economics & Finance ( email )

Department of Economics & Finance
Alumni Hall 3144
Edwardsville, IL 62026-1102
United States
(618) 650-2939 (Phone)
(618) 650-3047 (Fax)

HOME PAGE: http://www.siue.edu/~rdemire/

Economic Research Forum (ERF)

21 Al-Sad Al-Aaly St.
(P.O. Box: 12311)
Cairo, Cairo
Egypt

HOME PAGE: http://erf.org.eg/affiliates/riza-demirer-3/

Roman Ferrer Lapeña

Faculty of Economics. University of Valencia

Avda Tarongers s/n 46071
Valencia, Valencia 46023
Spain

Syed Jawad Hussain Shahzad

Montpellier Business School ( email )

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
78
Abstract Views
376
rank
366,989
PlumX Metrics