The impact of oil price change and its volatility on major global stock markets

This paper investigates the impact of oil price change, and its volatility on the stock market returns of the US, Japan, and China.Moreover it highlights the association between the returns of each market with respect to the returns of the other markets. More specifically, the study uses daily data of three indices to represent the markets which are Standard & Poor 500, Nikkei 225, and Shanghai Composite (SSE), beside daily data of crude oil price. The GARCH model employed to measure the volatility. The findings indicate that, the S&P500 returns are influenced significantly by oil price change, the returns of both N225 and SSE, as well as its own past volatility. Regarding Nikkei 225 returns it influenced by the returns of the S&P500 and SSE, and by its own previous day volatility. In contrast, Shanghai Composite returns are not influenced neither by oil price change, nor by the returns of the two other indices, rather it’s only affected by its own previous volatility, and S&P500 and Nikkei 255 returns are influencing each other. The impact of oil price volatility on the three stock indices returns is insignificant during the sample period.