Sunday, 23 October 2011: 12:15 PM
This work aims to study the extent to which oil and natural gas price movements influence stock and bond markets worldwide. The influence of oil price on stock market is a research argument frequently met in the financial literature over the last decades; however, there are less studies with the regards to its influence on bond markets, and also regarding the influence of natural gas price on stock and bond markets. The novelty of this work is twofold. First, it studies the simultaneous interaction between stock, bonds, crude oil and natural gas markets, in order to observe the influence of both oil and natural gas on stock and bond markets concurrently. Second, it compares two different approaches in making the empirical analysis: accordingly, the multivariate GARCH BEKK (1,1) model is applied, and then the Intermarket analysis is utilized. There are 93 time series involved in the empirical analysis, covering 31 different markets. The time series consist of general stock indices, oil and natural gas companies indices, transportation industry indices, 10Y government bond indices, West Texas Intermediate spot prices, and Natural Gas Henry Hub spot prices. The research study is conducted over a time period ranging from February 1998 until September 2010, estimates being also made over two sub-periods: before and after the financial crisis has started. The main results emphasize that there are countries where oil and natural gas have no influence on financial market returns, despite of the importance that these commodities have in relation to general economic activity. Hence, broadly speaking both econometric and Intermarket analyses highlight that oil and natural gas prices have had especially significant impacts upon the returns of specific activity indices, and only after the financial crisis started they have also begun to influence the general stock indices. Nevertheless, application of the two different methods on the same dataset yields some contradictory results.