Elsevier

Finance Research Letters

Volume 37, November 2020, 101773
Finance Research Letters

How has the relationship between oil and the US stock market changed after the Covid-19 crisis?

https://doi.org/10.1016/j.frl.2020.101773Get rights and content

Highlights

  • We study the relationship between oil and the US stock market.

  • We compare the relationship before and after the onset of the Covid-19 crisis.

  • To do so, we compute upside and downside correlations between the two markets.

  • We find that both upside and downside correlations increased after the crisis.

Abstract

In this paper, we investigate how the relationship between oil and the US stock market has changed after the onset of Covid-19 crisis. To do so, we compute upside and downside correlations between the two markets. Our findings are as follows. First, we document the correlation asymmetry: the downside correlation is higher than the upside correlation. Second, we find that both upside and downside correlations increased after the crisis. This indicates that after the start of the Covid-19 crisis, a positive (negative) oil shock is even better (worse) news for the stock market than an equivalent shock before the crisis.

Keywords

WTI
Non-normality
Mixture models
Nonparametric test
Dynamic conditional correlation model

JEL classification

F31
G01
G15
G32

Cited by (0)

The authors deeply appreciate James Schulte for his editorial comments. Yuji Sakurai is thankful to Kei Takasawa, Kei Morisue and Sae Kuwata. The views expressed in this paper are those of the authors and do not necessarily reflect the position of the Bank of Japan, the Federal Reserve Bank of Richmond or the Federal Reserve System.

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