Dynamics of crude oil price shocks and major Latin American Equity Markets: A study in time and frequency domains

Bahram Adrangi*, Arjun Chatrath, Joseph Macri, Kambiz Raffiee

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

6 Citations (Scopus)

Abstract

We examine the impact of crude oil price fluctuations on equity markets for four emerging Latin American markets, namely, Argentina, Brazil, Chile, and Mexico. We adopt an approach that examines this relationship in both a time and frequency domains. The co-spectral analysis confirmed that most of the observable coherence between crude oil and equity returns occurred at relatively short frequencies. The structural vector autoregression (SVAR) results suggest that shocks to crude oil price directed all equity markets into negative territory, though they typically reversed course after approximately twenty-four months. Although the decomposition of the prediction error variance showed that crude oil prices were weakly exogenous in the SVAR model, in most cases Brazil's equity market may have been responsible for the higher percentage of variations in the remaining indices. The nonlinear Granger causality tests reveal, with the exception of the Merval index, the equity markets under study were responsive to crude oil price shocks.

Original languageEnglish
Pages (from-to)432-455
Number of pages24
JournalBulletin of Economic Research
Volume73
Issue number3
DOIs
Publication statusPublished - Jul 2021

Keywords

  • asymmetry
  • co-spectral and coherence
  • crude oil shocks
  • EGARCH
  • equity markets
  • Granger causality
  • nonlinearity
  • spectral density

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