Oil shocks and equity markets: The case of GCC and BRICS economies

This study analyzes the relationship between oil shocks and the equity markets of a group of world major oil producers and consumers encompassing both the GCC and BRICS economies. We employ a novel framework to decompose the oil shocks (demand, supply, and risk shocks) into their daily components. Subsequently, we also employ a network connectedness approach to investigate the static and time-varying connectedness of these shocks with equity markets. Our sample period ranges from January 6, 2005, to July 17, 2020. Empirical results show a medium connectedness between examined equity markets and oil shocks, in terms of returns and volatility, with an unpreceded level during the recent COVID-19 crisis. Furthermore, the volatility of oil-exporting countries contributes more to the volatility connectedness. Demand shock and risk shock are the main contributors to the connectedness. This study analyzes the relationship between oil shocks and the equity markets of a group of world major oil producers and consumers encompassing both the GCC and BRICS economies. We employ a novel framework to decompose the oil shocks (demand, supply, and risk shocks) into their daily components. Subsequently, we also employ a network connectedness approach to investigate the static and time-varying connectedness of these shocks with equity markets. Our sample period ranges from January 6, 2005, to July 17, 2020. Empirical results show a medium connectedness between examined equity markets and oil shocks, in terms of returns and volatility, with an unpreceded level during the recent COVID-19 crisis. Furthermore, the volatility of oil-exporting countries contributes more to the volatility connectedness. Demand shock and risk shock are the main contributors to the connectedness. (c) 2021 Elsevier B.V. All rights reserved.