Tracing the Genesis of Contagion in the Oil-Finance Nexus

19 Pages Posted: 27 Nov 2019

See all articles by Scott M. R. Mahadeo

Scott M. R. Mahadeo

Portsmouth Business School

Reinhold Heinlein

Keele University - Keele Management School

Gabriella Deborah Legrenzi

Keele University - Keele Business School

Date Written: 2019

Abstract

A new procedure to trace the sources of contagion in the oil-finance nexus is proposed. We do this by consolidating veteran rules derived from the empirical oil literature to filter oil supply, global demand, and oil demand shocks into discrete typical and extreme conditions. We show how these identified conditions can then be used to determine the stable and extreme sub-samples for comparing market relationships in the construction of contagion tests. Our original approach is useful for systemic risk assessment in countries vulnerable to oil market shocks. We illustrate the procedure using the dynamic relationships between the international crude oil market and the financial markets of a small oil-exporter.

Keywords: contagion, correlation, exchange rate, oil, stock market

JEL Classification: C320, E370, Q430

Suggested Citation

R. Mahadeo, Scott M. and Heinlein, Reinhold and Legrenzi, Gabriella Deborah, Tracing the Genesis of Contagion in the Oil-Finance Nexus (2019). CESifo Working Paper No. 7925. Available at SSRN: https://ssrn.com/abstract=3485474

Scott M. R. Mahadeo (Contact Author)

Portsmouth Business School ( email )

Portsmouth, PO1 3DE
United Kingdom

Reinhold Heinlein

Keele University - Keele Management School ( email )

Darwin Building
Staffordshire, ST5 5BG
United Kingdom

Gabriella Deborah Legrenzi

Keele University - Keele Business School ( email )

Keele, ST5 5AA
United Kingdom

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