Role of 2008 financial contagion in effecting the mediating role of stock market indices between the exchange rates and oil prices: Application of the unrestricted VAR
This research article explores the mediating role of stock market indexes on the link between exchange rate variations and oil prices by utilizing unrestricted VAR. Previously mainstream research only explained the direct dynamism between the two variables. However, any transmission mechanism for ex...
| Main Authors: | , , , , |
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| Format: | Article |
| Language: | English |
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Taylor & Francis Group
2022-12-01
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| Series: | Cogent Economics & Finance |
| Subjects: | |
| Online Access: | https://www.tandfonline.com/doi/10.1080/23322039.2022.2139884 |
| _version_ | 1798019302338592768 |
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| author | Mosab I Tabash Muzaffar Asad Ather Azim Khan Umaid A Sheikh Zaheerudin Babar |
| author_facet | Mosab I Tabash Muzaffar Asad Ather Azim Khan Umaid A Sheikh Zaheerudin Babar |
| author_sort | Mosab I Tabash |
| collection | DOAJ |
| description | This research article explores the mediating role of stock market indexes on the link between exchange rate variations and oil prices by utilizing unrestricted VAR. Previously mainstream research only explained the direct dynamism between the two variables. However, any transmission mechanism for explaining the transmission of shocks from oil prices toward the currency rates has been ignored. Therefore, we have utilized multiple traditional unit root testing procedures followed by a co-integration technique by Johansen (1988). We find that stock market indexes serve as a transmission channel between oil price variability and exchange rate during the pre and post financial recession. Moreover, the dynamic inverse association between the local currency depreciation and stock indices shows the bidirectional return spillover during the pre-contraction period. After the contraction period, the mediating role of stock market indexes is still evident but without the dynamic association between exchange rate and stock indexes. However, during the pre-recession, the transmission mechanism of shocks from the stock indices toward the exchange rate is triggered by oil price negative shocks, whereas after the crisis, the shocks from the stock indices towards the exchange rate are mainly due to positive oil price shocks. This research contributes to the mainstream literature by challenging the theoretical models about the direct dynamism between oil prices and currency and found the mediating role of stock market indexes by utilizing a portfolio balanced approach |
| first_indexed | 2024-04-11T16:38:32Z |
| format | Article |
| id | doaj.art-a093a36300c3429e89ac79c8996a603d |
| institution | Directory Open Access Journal |
| issn | 2332-2039 |
| language | English |
| last_indexed | 2024-04-11T16:38:32Z |
| publishDate | 2022-12-01 |
| publisher | Taylor & Francis Group |
| record_format | Article |
| series | Cogent Economics & Finance |
| spelling | doaj.art-a093a36300c3429e89ac79c8996a603d2022-12-22T04:13:45ZengTaylor & Francis GroupCogent Economics & Finance2332-20392022-12-0110110.1080/23322039.2022.2139884Role of 2008 financial contagion in effecting the mediating role of stock market indices between the exchange rates and oil prices: Application of the unrestricted VARMosab I Tabash0Muzaffar Asad1Ather Azim Khan2Umaid A Sheikh3Zaheerudin Babar4College of Business, Al Ain University, Al Ain, United Arab EmiratesAssistant Professor, Department of Marketing and Entrepreneurship, College of Commerce and Business Administration, Dhofar University, Salalah, OmanDean Faculty of Management and Administrative Sciences, University of Sialkot, PakistanFaculty of Management Studies, University of Central Punjab, Lahore, PakistanUCP Business School, University of Central Punjab, Lahore, PakistanThis research article explores the mediating role of stock market indexes on the link between exchange rate variations and oil prices by utilizing unrestricted VAR. Previously mainstream research only explained the direct dynamism between the two variables. However, any transmission mechanism for explaining the transmission of shocks from oil prices toward the currency rates has been ignored. Therefore, we have utilized multiple traditional unit root testing procedures followed by a co-integration technique by Johansen (1988). We find that stock market indexes serve as a transmission channel between oil price variability and exchange rate during the pre and post financial recession. Moreover, the dynamic inverse association between the local currency depreciation and stock indices shows the bidirectional return spillover during the pre-contraction period. After the contraction period, the mediating role of stock market indexes is still evident but without the dynamic association between exchange rate and stock indexes. However, during the pre-recession, the transmission mechanism of shocks from the stock indices toward the exchange rate is triggered by oil price negative shocks, whereas after the crisis, the shocks from the stock indices towards the exchange rate are mainly due to positive oil price shocks. This research contributes to the mainstream literature by challenging the theoretical models about the direct dynamism between oil prices and currency and found the mediating role of stock market indexes by utilizing a portfolio balanced approachhttps://www.tandfonline.com/doi/10.1080/23322039.2022.2139884Transmission mechanismexchange ratesoil pricesstock market indicesunrestricted VARjohansen test of co-integration |
| spellingShingle | Mosab I Tabash Muzaffar Asad Ather Azim Khan Umaid A Sheikh Zaheerudin Babar Role of 2008 financial contagion in effecting the mediating role of stock market indices between the exchange rates and oil prices: Application of the unrestricted VAR Cogent Economics & Finance Transmission mechanism exchange rates oil prices stock market indices unrestricted VAR johansen test of co-integration |
| title | Role of 2008 financial contagion in effecting the mediating role of stock market indices between the exchange rates and oil prices: Application of the unrestricted VAR |
| title_full | Role of 2008 financial contagion in effecting the mediating role of stock market indices between the exchange rates and oil prices: Application of the unrestricted VAR |
| title_fullStr | Role of 2008 financial contagion in effecting the mediating role of stock market indices between the exchange rates and oil prices: Application of the unrestricted VAR |
| title_full_unstemmed | Role of 2008 financial contagion in effecting the mediating role of stock market indices between the exchange rates and oil prices: Application of the unrestricted VAR |
| title_short | Role of 2008 financial contagion in effecting the mediating role of stock market indices between the exchange rates and oil prices: Application of the unrestricted VAR |
| title_sort | role of 2008 financial contagion in effecting the mediating role of stock market indices between the exchange rates and oil prices application of the unrestricted var |
| topic | Transmission mechanism exchange rates oil prices stock market indices unrestricted VAR johansen test of co-integration |
| url | https://www.tandfonline.com/doi/10.1080/23322039.2022.2139884 |
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