Oil price shocks and energy stock returns of ASEAN-5 countries: evidence from Ready’s (2018) decomposition technique in a markov regime switching framework
The present study applies a new decomposition technique by Ready (2018) to estimate the impact of oil price shocks on stock return in a Markov Regime Switching framework. The approach solves certain shortcomings of the novel procedure from Kilian by incorporating daily forward-looking prices of...
| Main Authors: | , , , |
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| Format: | Article |
| Language: | English |
| Published: |
Penerbit Universiti Kebangsaan Malaysia
2021
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| Online Access: | http://journalarticle.ukm.my/17186/ http://journalarticle.ukm.my/17186/1/24.pdf |
| Summary: | The present study applies a new decomposition technique by Ready (2018) to estimate the impact of oil price shocks
on stock return in a Markov Regime Switching framework. The approach solves certain shortcomings of the novel
procedure from Kilian by incorporating daily forward-looking prices of traded financial asset. The regime switching
regression provides the evidence of strong nonlinear association of stock returns to risk shocks and demand shocks
despite the absence of strong regime effects. We also demonstrate that positive demand shocks increase stock returns,
whereas positive risk shocks negatively impact stock returns. For supply shocks, findings show that oil supply shocks
do not significantly impact stock returns for Malaysia and Singapore. For Indonesia, supply shocks have a significant
positive effect only in high volatility state. In the case of Thailand and the Philippines, the effects of supply shocks are
negative and significant in high volatility state; but are not significant in low volatility state. Overall, our results suggest
that demand shock has a greater economic impact than supply and risk shocks as demonstrated previously by Kilian
and Park and Ready. |
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