Abstract
This study analyzes the relationship between oil shocks and the equity markets of a group of world major oil producers and consumers encompassing both the GCC and BRICS economies. We employ a novel framework to decompose the oil shocks (demand, supply, and risk shocks) into their daily components. Subsequently, we also employ a network connectedness approach to investigate the static and time-varying connectedness of these shocks with equity markets. Our sample period ranges from January 6, 2005, to July 17, 2020. Empirical results show a medium connectedness between examined equity markets and oil shocks, in terms of returns and volatility, with an unpreceded level during the recent COVID-19 crisis. Furthermore, the volatility of oil-exporting countries contributes more to the volatility connectedness. Demand shock and risk shock are the main contributors to the connectedness.
•We employ a novel framework to decompose the oil shocks into their daily components.•We show a medium connectedness between examined equity markets and oil shocks.•We document an unpreceded level of connectedness during the recent COVID-19 crisis.•Volatility of oil-exporting countries contributes more to the volatility connectedness.•Demand shock and risk shock are the main contributors to the connectedness.