A Markov Switching Approach in Assessing Oil Price and Stock Market Nexus in the Last Decade: The Impact of the COVID-19 Pandemic

Phoong Seuk Yen

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Type :	article
ISSN :	2158-2440
Main Author :	Phoong Seuk Yen
Title :	A Markov Switching Approach in Assessing Oil Price and Stock Market Nexus in the Last Decade: The Impact of the COVID-19 Pandemic

Place of Production :	Tanjung Malim
Publisher :	Fakulti Sains dan Matematik
Year of Publication :	2023
Notes :	SAGE Open
Corporate Name :	Universiti Pendidikan Sultan Idris
HTTP Link :	Click to view web link

Abstract : Universiti Pendidikan Sultan Idris

We revisit the oil price and stock market nexus by considering the impact of major economic shocks in the post-global financial crisis (GFC) scenario. Our breakpoint unit root test and Markov switching regression (MRS) analyses using West Texas Intermediate (WTI) oil price and Standard & Poors 500 (S&P 500) market index show that among the major economic events, the recent coronavirus (COVID-19) pandemic is the most significant contributor to market volatilities. Furthermore, our MRS results show that the relationship between oil price and the stock market is regime-dependent; the stock market experiences substantial and positive shocks in a volatile oil price regime. Our results provide valuable insights to investors and policymakers regarding risk management and financial market stability during economic crisis periods, specifically during the COVID-19 pandemic. The Author(s) 2023.

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