Oil Shocks and BRIC Markets: Evidence from Extreme Quantile Approach

Abstract

The present study aims to configure the extreme quantile dependence between oil shocks and BRIC markets from January 2, 1995 to July 27, 2021. Using the cross-quantilogram technique, the current study first decomposed oil shocks pertaining to demand and supply and analyzed their asymmetric impact on BRIC markets. Our findings manifest positive and persistent dependencies between oil demand shocks and BRIC markets. Meanwhile, substantial cross-quantile dependence is demonstrated among shocks in oil supply and the stock returns of Russia. The recursive cross-quantilogram analysis indicates time-varying characteristics reiterating that oil demand shocks are positively and significantly correlated with BRIC stock returns, particularly after the Global Financial Crisis and COVID-19 pandemic. However, weaker dependencies are observed in the normal market conditions in the absence of financial contagion. Finally, after controlling the impact of idiosyncratic risk shocks, our results remain robust. Our findings are of particular prominence for policymakers, investors, and financial market constituents to restructure their current policies and strategies for avoiding uncertainty in the stock returns.

Keywords: Oil Shocks, BRIC markets, Cross-quantilogram, Extreme Quantiles