Oil Price Shocks and Stock Markets in ASEAN-5

Abstract

This paper examines the impact of oil price shocks and oil price volatility on real stock prices in Indonesia, Malaysia, Philippines, Singapore and Thailand. Using a monthly structural vector autoregression model estimated separately for each country from 1997:7 to 2013:12, the results show that in response to an oil price shock, real stock prices fall within six months in all the countries as the central banks increase interest rates to reduce inflationary pressures. In contrast to the findings in existing studies on the US and European countries, monetary policy shocks in ASEAN-5 are more important in explaining the variability in real stock returns compared to oil price shocks. The fall in real stock prices is also observed under both positive and negative oil price shocks, suggesting that oil price volatility plays an important role in explaining stock price movements. In response to an increase in oil price volatility, real stock prices are depressed immediately but they gradually recover as the economic situation improves.