The Impact of Oil Price Shocks on the Large Emerging Countries’ Stock Prices: Evidence from China, India and Russia

Abstract

Although a lot of empirical research has studied the relationship between changes in oil prices and economic activity, it is surprising that little research has been conducted on the relationship between oil price shocks and the large Newly Industrialized Economies (NIEs). Therefore, this paper modifies the procedure of Kilian and Park (2009) and investigates how explicit structural shocks that characterize the endogenous character of changes in oil prices affect three large NIEs` stock-market returns, in order to fill this gap. From the empirical analysis, we find that the impact of oil price shocks on stock prices in these large NIEs is mixed, partly in contrast to the effects on the U.S. and developed countries` stock markets. This result is also consistent with the previous empirical findings that the NIEs` stock markets are “partially integrated” with the other stock markets and oil price shocks.