Author: Danilo PavlićevićPublisher:
ISBN:
Category : Economic policy
Languages : en
Pages : 0
Book Description
Ever since crude oil became a lifeline to the world economy, there is no doubt that oil is the most traded commodity in the world’s stock markets. There have been numerous articles and research papers written about the relationship between oil prices and stock markets, and the correlation between the two. Vast majority of them have shown that there is a correlation between them, and that changes in one affect the other. However, very few have examined the determinants of co-movements between oil prices and stock markets using a vector autoregressive (VAR) model. This thesis examines determinants of co-movements between three oil importing countries stock market indices, as well as three oil exporting countries stock indices and the crude oil prices. What makes this study relevant is that it is not only examining stock indices of randomly selected countries, but it shows indices of three chosen oil importing and oil exporting countries. For the purpose of this research the oil importing countries used to demonstrate the effects in changes in determinants of co-movements between oil prices and stock markets are USA, China, and Germany. Each is chosen to represent certain parts of the world. For the oil exporting countries, we excluded countries whose entire GDP or at least huge portion of it, is only consistent of oil exports. Therefore, Norway, the European largest oil exporter, Russia, the world's second largest oil exporter, and Canada, largest North American oil exporter, are taken in order to reflect the effects of changes in determinants of co-movements in their respective stock markets. Economic policy uncertainty Index (EPU), Geopolitical Risk Index (GPR), the exchange rate between US dollar and all the other countries’ currencies. These are the factors affecting both oil prices and stock markets. EPU Index shows how often do national newspaper articles in a certain country write about issues pertaining to the economy uncertainty and policy-related matters. When it comes to GPR Index, it is based on measuring the frequency of words related to geopolitical tensions in leading international newspapers. The US dollar is the world’s most important currency; therefore, all the other countries in the world strive to maintain steady exchange rate between the US dollar and currencies of their own. By using vector autoregressive (VAR) model, this study will show the effects of each determinant on stock markets of US, Germany, China, Russia, Norway, and Canada.
