The impact of local and global oil price shocks on stock market returns and exchange rates: Evidence from oil-importing and oil-exporting countries

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Copyright: Rojasavachai, Ravipa
In this thesis, we examine whether the impacts of local and global oil price shocks on stock market returns and exchange rates in oil-exporting countries are different from those in oil-importing countries. We construct global oil price shocks using a structural vector autoregressive model (SVAR) developed by Kilian (2009); local oil price shocks are constructed following Ready’s (2018) approach using ordinary least squares (OLS) regression. Our findings show that local oil price shocks and global oil price shocks have different impacts on both stock market returns and exchange rates depending on the level of oil dependence of each country and the source of oil price changes. Changes in oil prices driven by local and global demand shocks have a positive effect on stock market returns in both oil-exporting and oil-importing countries. On the other hand, the impact of local and global supply shocks on stock market returns is mixed. Interestingly, local supply shocks have a significantly stronger impact than global supply shocks. In addition, our results on the relationship between oil price shocks and exchange rates show that local demand and local supply shocks contribute to the appreciation of oil-exporters’ currency while these local shocks lead to depreciation of oil-importers’ currency. Moreover, global demand shocks lead to U.S. dollar appreciation while there is depreciation in the U.S. dollar following global supply shocks.
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Rojasavachai, Ravipa
Yang, Li
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Masters Thesis
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