Interrelationships Between Crude Oil Price Shocks, Stock Market, and Foreign Exchange Market: Evidence from USA Market

Abstract

This study investigates the inter-relationships between three different markets – the stock market (S&P₅₀₀), the Brent oil market, and the foreign exchange market (FX), during different Brent oil price shock periods. We examined mean-reverting properties for Brent oil prices and the volatility relationships between the three markets using the constant conditional correlations (CCC) model, the dynamic conditional correlations (DCC), and the time-varying conditional correlations (VCC). We found evidence that there are arbitrage opportunities in the Brent oil markets and that there are volatility relationships between the three markets. The paper also concluded that there is a long-run dynamic equilibrium between Brent oil, FX, and S&P₅₀₀.