This article investigates the causal impact of oil prices on stock prices in each G7 market as well as in the world market. An asymmetric causality test is used for this purpose. Since the underlying data appears to be non-normal with time-varying volatility, we use bootstrap simulations with leverage adjustments in order to produce more reliable critical values than the asymptotic ones. Based on symmetric causality tests, we find no causal effect of oil prices on the stock prices of the world market or any of the G7 countries. However, when we apply an asymmetric causality test, we find that increasing oil prices cause stock prices to rise in the world, the US and Japan while decreasing oil prices cause stock prices to fall in Germany. This may imply that the world, US and Japanese stock markets consider increases in oil prices as an indicator of good news as this may mean that there is an increase in oil demand due to an expected growth in the economy while the German stock market treats decreasing oil prices as a signal of an expected contraction in the economy.
scite is a Brooklyn-based startup that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.