Impact of oil volatility shocks on global emerging market stock returns

Purpose The purpose of this paper is to investigate whether the crude oil volatility index (OVX) plays any key role in explaining the trend in emerging market stock returns from a global standpoint. Design/methodology/approach At the empirical stage, different forms of the GARCH-jump model have been estimated. Findings The findings confirm the effects of OVX on equity returns. In addition, the results document that there exist time-varying jumps in the stock market returns. Besides, the impacts of OVX shocks appear to be symmetric. The analysis further shows that the magnitude of OVX impact is marginally bigger than that of the conventional oil price shocks. Originality/value Since various financial assets are traded on the basis of oil and equity markets, investors, for instance, could use the findings of this study for taking proper investment decisions and gaining better portfolio diversification benefits. Additionally, policymakers could utilize the results to develop effective measures and strategies in order to minimize the oil price risk.

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Oil price uncertainty and equity returns

Journal of Financial Economic Policy ◽

10.1108/jfep-06-2015-0035 ◽

2016 ◽

Vol 8 (1) ◽

pp. 64-79 ◽

Cited By ~ 16

Author(s):

Aktham Maghyereh ◽

Basel Awartani

Keyword(s):

Stock Returns ◽

Oil Production ◽

Equity Returns ◽

Oil Price ◽

Policy Implications ◽

Price Uncertainty ◽

Mena Region ◽

Stock Market Returns ◽

Content Type ◽

The Impact

Purpose This paper aims to examine the impact of oil price uncertainty on the stock market returns of ten oil importing and exporting countries in the Middle East and North Africa (MENA) region. The sample contains both oil importing and oil exporting countries that depend heavily on oil production and exports. Design/methodology/approach This paper intuitively applies the generalized autoregressive conditional heteroskedasticity (GARCH)-in-mean vector autoregression (VAR) model using weekly data over the period January 2001-February 2014. Findings The findings indicate that oil uncertainty matters in the determination of real stock returns. There is a negative and significant relationship between oil price uncertainty and real stock returns in all countries in the sample. The influence of oil price risk is more serious in those economies that depend heavily on oil revenues to grow. Practical implications The findings have important implications. For instance, managers should be aware of the linkages between oil price uncertainty and equity returns when they use oil to hedge and diversify equities, particularly in economies where oil is important for economic growth. The policymakers in oil importing countries should encourage companies to improve efficiency in the usage of energy and to resort to alternative sources to avoid fluctuations in earnings and equity prices. In the countries that heavily depend on oil efforts should focus on diversifying the domestic economy away from oil to protect against oil price fluctuations. Originality/value To the best of our knowledge, this is the first attempt to study the influence of oil price uncertainty in the MENA region. The sample contains both oil importing and oil exporting countries that depend heavily on oil production and exports. The empirical findings of the paper have valuable policy implications for investors, market participants and policymakers.

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The complex relationship between inflation and equity returns

Journal of Economic Studies ◽

10.1108/jes-10-2020-0526 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Jinan Liu ◽

Apostolos Serletis

Keyword(s):

Central Bank ◽

Stock Returns ◽

Empirical Studies ◽

Equity Returns ◽

Empirical Literature ◽

Complex Relationship ◽

Inflation Uncertainty ◽

Stock Market Returns ◽

Content Type ◽

The Relationship

PurposeTo investigate the complex relationship between inflation, inflation uncertainty and equity returns.Design/methodology/approachThis paper uses a bivariate VARMA, GARCH-in-mean, asymmetric BEKK model to investigate the relationship between inflation, inflation uncertainty and equity returns.FindingsUsing monthly inflation and equity returns data for the G7 and EM7 economies, we find that the effects of inflation and inflation uncertainty on equity returns vary across countries.Research limitations/implicationsThe mixed evidence we find potentially reflects the changing dynamics, policy regimes, economic shocks and country-specific factors (such as differences in the financing patterns of enterprises and the legal and financial environments) across the G7 and EM7 countries.Practical implicationsWe contribute to the empirical literature in the following ways. First, we rely on a wide sample of countries, including both developed and emerging economies. Second, we extend previous research by estimating a GARCH-in-mean model of monthly equity returns in which both realized returns and their conditional volatility are allowed to vary with inflation. Previous articles that studied the relationship between inflation and stock market returns generally sought time-invariant effects of inflation on stock returns.Social implicationsThe paper helps to reconcile the divergent results of previous empirical studies and distinguish between alternative explanations of the relationship between inflation and equity returns.Originality/valueOur study provides an improved comprehension of the ambiguous relationship between inflation, inflation uncertainty and equity returns under various central bank mandates and different levels of central bank independence. The mixed empirical evidence across countries we present provides insights for the macroeconomic models that consider the relationship between uncertainty and macroeconomic performance as a fundamental building block. Therefore, our empirical study calls for further work on the relationship between inflation, inflation uncertainty and equity returns.

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Are Islamic stocks subject to oil price risk exposure?

The Journal of Risk Finance ◽

10.1108/jrf-05-2019-0076 ◽

2020 ◽

Vol 21 (2) ◽

pp. 181-200

Author(s):

Ivan Mugarura Tusiime ◽

Man Wang

Keyword(s):

New York ◽

Stock Returns ◽

Oil Price ◽

Stock Exchanges ◽

Price Risk ◽

Significant Determinant ◽

Cross Sectional ◽

Monthly Data ◽

Content Type ◽

Oil Price Risk

Purpose The purpose of this paper is to examine whether oil price risk is a significant determinant of stock returns. Design/methodology/approach Using monthly data on a sample of Islamic stocks listed on the New York Stock Exchanges and National Association of Securities Dealers Automated Quotations System (NASDAQ) over the period from January 1990 to December 2017, the study examines whether oil price risk is a significant determinant of stock returns using Fama–French–Carhart’s four-factor asset pricing model amplified with Brent oil price factor. Findings The results from the cross-sectional regression analysis indicate that the extent of the exposure is significantly positive using a full sample period. Moreover, results from size and momentum factors are highly significant whereas book-to-market has no significant impact on Islamic stock returns. Research limitations/implications The results support the concept for diversification in equity investment and are thus important for investors, analysts and policymakers. Originality/value This study is the first of its kind to establish whether oil price risk is a factor that can determine returns of Islamic listed stocks using the most developed stock market in the world (New York Stock Exchanges and NASDAQ).

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Conditional stock liquidity premium: is Warsaw stock exchange different?

Studies in Economics and Finance ◽

10.1108/sef-03-2020-0075 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Szymon Stereńczak

Keyword(s):

Emerging Markets ◽

Stock Returns ◽

Stock Exchange ◽

Emerging Market ◽

Market Liquidity ◽

Investment Horizon ◽

Liquidity Premium ◽

Stock Liquidity ◽

Content Type ◽

Bear Market

Purpose This paper aims to empirically indicate the factors influencing stock liquidity premium (i.e. the relationship between liquidity and stock returns) in one of the leading European emerging markets, namely, the Polish one. Design/methodology/approach Various firms’ characteristics and market states are analysed as potentially affecting liquidity premiums in the Polish stock market. Stock returns are regressed on liquidity measures and panel models are used. Liquidity premium has been estimated in various subsamples. Findings The findings vividly contradict the common sense that liquidity premium raises during the periods of stress. Liquidity premium does not increase during bear markets, as investors lengthen the investment horizon when market liquidity decreases. Liquidity premium varies with the firm’s size, book-to-market value and stock risk, but these patterns seem to vanish during a bear market. Originality/value This is one of the first empirical papers considering conditional stock liquidity premium in an emerging market. Using a unique methodological design it is presented that liquidity premium in emerging markets behaves differently than in developed markets.

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A quantile regression approach to evaluate the relative impact of global and local factors on the MENA stock markets

International Journal of Emerging Markets ◽

10.1108/ijoem-03-2020-0251 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Slah Bahloul ◽

Nawel Ben Amor

Keyword(s):

Stock Market ◽

Quantile Regression ◽

Stock Returns ◽

Stock Markets ◽

Financial Integration ◽

Ordinary Least Squares ◽

Market Returns ◽

Stock Market Returns ◽

Content Type ◽

The Impact

PurposeThis paper investigates the relative importance of local macroeconomic and global factors in the explanation of twelve MENA (Middle East and North Africa) stock market returns across the different quantiles in order to determine their degree of international financial integration.Design/methodology/approachThe authors use both ordinary least squares and quantile regressions from January 2007 to January 2018. Quantile regression permits to know how the effects of explanatory variables vary across the different states of the market.FindingsThe results of this paper indicate that the impact of local macroeconomic and global factors differs across the quantiles and markets. Generally, there are wide ranges in degree of international integration and most of MENA stock markets appear to be weakly integrated. This reveals that the portfolio diversification within the stock markets in this region is still beneficial.Originality/valueThis paper is original for two reasons. First, it emphasizes, over a fairly long period, the impact of a large number of macroeconomic and global variables on the MENA stock market returns. Second, it examines if the relative effects of these factors on MENA stock returns vary or not across the market states and MENA countries.

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Weather, investor psychology and stock returns: evidence from Fiji's stock market

Review of Behavioral Finance ◽

10.1108/rbf-01-2021-0007 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Janesh Sami

Keyword(s):

Stock Market ◽

Stock Returns ◽

Sunshine Duration ◽

Market Returns ◽

Modeling Framework ◽

Stock Market Returns ◽

Content Type ◽

Asset Pricing Models ◽

Weather Changes ◽

Practical Implications

PurposeThis paper investigates whether weather affects stock market returns in Fiji's stock market.Design/methodology/approachThe author employed an exponential general autoregressive conditional heteroskedastic (EGARCH) modeling framework to examine the effect of weather changes on stock market returns over the sample period 9/02/2000–31/12/2020.FindingsThe results show that weather (temperature, rain, humidity and sunshine duration) have robust but heterogenous effects on stock market returns in Fiji.Research limitations/implicationsIt is useful for scholars to modify asset pricing models to include weather-related variables (temperature, rain, humidity and sunshine duration) to better understand Fiji's stock market dynamics (even though they are often viewed as economically neutral variables).Practical implicationsInvestors and traders should consider their mood while making stock market decisions to lessen mood-induced errors.Originality/valueThis is the first attempt to examine the effect of weather (temperature, rain, humidity and sunshine duration) on stock market returns in Fiji's stock market.

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Emerging markets are now more resilient to US tapering

Emerald Expert Briefings ◽

10.1108/oxan-db260123 ◽

2021 ◽

Keyword(s):

Emerging Markets ◽

Emerging Market ◽

Bond Market ◽

Oil Price ◽

Inflation Expectations ◽

Content Type ◽

Dramatic Decline ◽

Equity Funds

Significance The rise in yields is stirring memories of the 2013 ‘taper tantrum’, which led to a dramatic decline in emerging market (EM) currencies and local bonds, prompting three years of net outflows from EM debt and equity funds. Investor fears of US tightening have risen with growth and inflation expectations. Impacts If the trade-weighted dollar index rises further, this will threaten EM currencies, especially those with large dollar-denominated debts. The Brent oil price has gained 70% since November to USD68 per barrel but further upside is limited, with no commodities ‘supercycle’ ahead. Recent moves fuel fears of the normally staid US bond market becoming volatile; stable ten-year Chinese yields are being seen as a haven.

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Effects of the COVID-19 pandemic on stock market returns and volatilities: evidence from selected emerging economies

Studies in Economics and Finance ◽

10.1108/sef-09-2020-0389 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Bijoy Rakshit ◽

Yadawananda Neog

Keyword(s):

Exchange Rate ◽

Stock Market ◽

Emerging Economies ◽

Market Performance ◽

Exchange Rate Volatility ◽

Oil Price ◽

Market Returns ◽

Stock Market Returns ◽

Content Type ◽

Stock Market Performance

Purpose The purpose of this paper is to investigate the effects of exchange rate volatility, oil price return and COVID-19 cases on the stock market returns and volatility for selected emerging market economies. Additionally, this study compares the market performance in the emerging economies during the COVID-19 pandemic with the pre-COVID and global financial crisis (GFC) period. Design/methodology/approach The authors apply the arbitrage pricing theory to model the risk-return relationship between the risk-based factors (exchange rate volatility and COVID-19 cases) and stock market returns. By applying the exponential generalized autoregressive conditional heteroskedasticity model, the study captures the asymmetric volatility spillover from the stock markets to foreign exchange markets and vice versa. Findings Findings reveal that exchange rate volatility exerts a negative and significant effect on the market returns in Brazil (BOVESPA), Chile (S&P CLX IPSA), India (SENSEX), Mexico (S&P BMV IPC) and Russia (MOEX) during the coronavirus pandemic. Regarding the effect of oil price returns, the authors find a positive relationship between oil price and stock market returns across all the economies in the study. The market returns of Russia, India, Brazil and Peru appeared more volatile during the pandemic than the GFC period. Practical implications As the exchange rate volatility is causing higher risk and uncertainty in the stock market’s performance, the central bank’s effort to maintain a stabilizing effect on the exchange rate sale can be proven crucial for the economies under consideration. Emphasized should also be given to boost investors’ confidence in the stock market, and for this, the government policy actions in reducing the transmission of the disease are the need of the hour. Originality/value While a large volume of literature on stock market performance in times of COVID-19 has emerged from developed economies, this study adds to the literature by exploring the emerging economies’ stock market performance during the COVID-19 pandemic. Unlike previous literature, this study examines the volatility spillover between stock and exchange rate markets in the worst affected emerging economies during the crisis.

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Comparative analyses of mean-variance and mean-semivariance approaches on global and local single factor market model for developed and emerging markets

International Journal of Emerging Markets ◽

10.1108/ijoem-01-2020-0110 ◽

2020 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Mehmet Emin Yildiz ◽

Yaman Omer Erzurumlu ◽

Bora Kurtulus

Keyword(s):

Emerging Markets ◽

Stock Returns ◽

Risk Measures ◽

Emerging Market ◽

Cost Of Equity ◽

Content Type ◽

The Cost ◽

Global And Local ◽

Insight Into ◽

Better Than

PurposeThe beta coefficient used for the cost of equity calculation is at the heart of the valuation process. This study conducts comparative analyses of the classical capital asset pricing model (CAPM) and downside CAPM risk parameters to gain further insight into which risk parameter leads to better performing risk measures at explaining stock returns.Design/methodology/approachThe study conducts a comparative analysis of 16 risk measures at explaining the stock returns of 4531 companies of 20 developed and 25 emerging market index for 2000–2018. The analyses are conducted using both the global and local indices and both USD and local currency returns. Calculated risk measures are analyzed in a panel data setup using a univariate model. Results are investigated in country-specific and model-specific subsets.FindingsThe results show that (1) downside betas are better than CAPM betas at explaining the stock returns, (2) both risk measure groups perform better for emerging markets, (3) global downside beta model performs better than global beta model, implying the existence of the contagion effect, (4) high significance levels of total risk and unsystematic risk measures further support the shortfall of CAPM betas and (5) higher correlation of markets after negative shocks such as pandemics puts global CAPM based downside beta to a more reliable position.Research limitations/implicationsThe data are limited to the index securities as beta could be time varying.Practical implicationsResults overall provide insight into the cost of equity calculation and emerging market assets valuation.Originality/valueThe framework and methodology enable us to compare and contrast CAPM and downside-CAPM risk measures at the firm level, at the global/local level and in terms of the level of market development.

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