Asymmetric And Dynamic Effects Of Oil Market Uncertainty On Stock Market Uncertainty For BRICS

As a financialized commodity,the oil is vulnerable to geopolitical risks,financial crises,epidemics and other unexpected events,resulting in great market uncertainty.This uncertainty can be transmitted to the stock market through a variety of paths,so it is profound to explore the impact of oil market uncertainty on stock market uncertainty to prevent the transmission of risk in financial markets.Over the past 20 years,the financial markets of the BRICS countries(China,Brazil,Russia,India and South Africa)have developed significantly and received high attention from investors worldwide.However,their stock markets differ obviously due to their different economic traits,which may make the oil market and the stock markets of the BRICS countries show different linkages at the national level.Moreover,the linkages between the oil and stock markets are not constant across different market conditions.To this end,this paper proposes a modified quantile-on-quantile(MQQ)model,which remedies two shortcomings of the recently widely used quantile-on-quantile(QQ)model.Based on the MQQ model,this paper further explores the asymmetric and dynamic effects of oil market uncertainty on stock market uncertainty under different market conditions for BRICS.The findings show that the impact of oil market uncertainty on stock market uncertainty in BRICS countries is overall positive and asymmetric under different market status.It depends not only on the state of the stock market but is also influenced by the state of the oil market.In addition,when both the oil market and the stock market are in extreme market status,the effect of oil market uncertainty on stock market uncertainty is usually higher than that of the normal market,and reaches the maximum when they both are in bearish.This impact also exhibits country-level heterogeneity across different BRICS economies.The magnitude of it and its transformation due to changes in market conditions vary.The results of dynamic effects show that the link between oil market and stock market uncertainty is time-varying within the sample interval,and the outbreak of COVID-19 and some events in BRICS countries increase the impact of oil market uncertainty on stock markets.Based on the theoretical analysis and empirical results,the following insights are obtained in this paper.Policy makers should take targeted measures to cope with the impact of oil market uncertainty according to their own country’s oil trade conditions and economic traits.Especially when the stock market and oil market both are in bearish,policy makers should take more stringent measures.For investors,they should construct diversified and dynamic portfolios to diversify the risks from oil market and stock market.And when looking for investment opportunities in cross-country stock markets,investors should construct differentiated portfolios in different countries to comply with the heterogeneity of uncertainty transmission from oil to stock market.