AbstractIn recent years there has been a surge in interest in two branches of research. The first is the analysis of cross‐market linkages, arising from portfolio diversification analysis, in order to measure integration between countries. The second larger branch of research is the oil price effect, which has its roots in the effect of oil prices on economic activity. Specifically the impact of oil prices on stock market behaviour which, in turn, is regarded as being representative of economic activity.
This thesis attempts to measure the effect of the oil prices on cross‐market linkages between stock markets. The analysis is performed utilising the Cheung and Ng (1996) causality‐in‐mean/variance test where the effect of the oil price on cross‐market linkages is estimated as the percentage change of the magnitude of the CCF coefficient after adjustment for the oil price. Daily data non-synchronisation correction and the application of the rolling window method as a stability test contribute to the reliability of the estimation outcomes.
Recognising the significance of oil prices for the development of the world economy, the research is focused on BRIC and mature market economies providing a mix of countries regarding their economic profile(emerging/developed) and oil‐status (net oil imported/self‐sufficient/exporter).
A complementary effect of oil prices on cross‐market linkages was found for the pairs of countries with similar oil status and economic profile. However, the outcome for mixed pairs does not demonstrate a prominent trend. In general, the effect of the oil price on cross‐market linkages is found to be smaller in contemporaneous terms, while higher lag dependencies are described by a higher percentage change in the magnitude of cross‐market dependencies.
The research demonstrates that the application of oil price adjustment, whilst exploring cross market linkages, may be an appropriate technique for determining the level of integration between pairs of countries where the sign of the percentage change is confirmed as stable.
|Date of Award||Nov 2010|
|Supervisor||Shabbar Jaffry (Supervisor) & Guy Judge (Supervisor)|