Oil price effect on financial market of major oil-importing and oil-exporting countries: Crises in concern

Muhammad Arif, Amara Asif and Aon Waqas

Abstract

This study explores oil price shocks' effect on stock market returns for six major oil-importing and oil-exporting countries between Feb-1998 to
March-2017. We use stock market data from oil-importing and an oilexporting country from three continents, namely Europe, Asia and America.
We apply panel and individual unit root tests to check the stationarity of data. Panel covariance results report a positive correlation between returns of
all selected countries except for the US, which is negatively correlated with all other stock markets. Panel least-square regression results show a
significant negative effect of oil price increase on stock market returns. Similarly, the exchange rate crisis also shows a significant negative
relationship with the stock market and exchange rate returns. The oil crisis does not show any significant effect on the stock market and exchange rate
returns. Fixed effect model results show that oil price and exchange rate returns positively affect stock market return where the oil crisis negatively
affects stock return. Further similar results are found for the quantile regression model where oil price and exchange rate crisis show a significant
positive effect. Similarly, the stock market is negatively affected by the oil crisis.
Keywords: Oil Prices, Stock Market Return, Exchange Rate Return, Oil Crisis.