The effects of oil prices on the sectoral stock markets of BRICS and Turkey: Evidence from time-varying parameter multi-factor asset-pricing models
Project no. 20718 · Status: Kapanmış · 2019
Summary
The time-varying effect of oil prices and exchange rates on sectoral stock returns in BRICS-T (Brazil, Russia, India, China, South Africa, and Turkey) countries is examined in this project. In this context, capital asset pricing models composed of market returns, oil prices, and exchange rate returns as the main risk factors that may affect stock returns have been estimated using daily data from January 2, 2001 to March 22, 2021. The existence of structural breaks was investigated by Bai and Perron (2003) test, and a state-space model based on the Kalman (1960) filter was used in the estimation of the model with varying parameters. Sub-sample parameter estimates based on structural breaks revealed that during the analysis period, most sectors were heavily influenced by exchange rate returns, with oil prices having a lower impact than exchange rates. Time-varying parameters derived from state-space models confirm that the effects of oil prices and exchange rate risks vary significantly across countries, sectors, and over time. The findings that oil prices and exchange rates have a significant impact on stock returns, particularly in energy-dependent industries, imply that these sectors are vulnerable to the risks associated with global market fluctuations. In this context, it has been concluded that policymakers would benefit from shaping energy-related policies such as increasing the share of domestic resources in energy production and increasing energy security by diversifying energy importing countries to reduce reliance on imported fossil fuels.