The infernal couple China-Oil Price and the Responses of G7 Equities: A QQ Approach

MPRA Paper from University Library of Munich, Germany

Abstract: China’s growingly sluggish economy and collapsing oil prices sent ripples through global equities, and G7 countries (United States, United Kingdom, Germany, Canada, Japan, France, Italy) are no exception in this regard. In this article, we address how react G7 stock markets to oil price under potent uncertainty encompassing the extent of China’s slowdown. The main feature of this study is its use of an unwonted method, dubbed the quantile-on-quantile (QQ) approach. Even though this method is based on the quantile regression paradigm, it departs from the conventional framework as the exogenous variable may be itself a quantile. This technique is devoted to unsettled context where standard methods are malapropos. Captivating findings have been shown. First, the QQ approach views the G7 stock markets responses to oil price as highly heterogeneous among taildistributions, where consistent with the notion of asymmetry. Second, the equities of Germany, Italy, Canada and United Kingdom (in this order) are typically more responsive than France, Japan and United States towards oil price. Third, even if the fears over China’s worsening outlook sends G7 countries into a deeper slowdown, United Kingdom, Japan, France and United States appear better positioned to weather the storm. The oil-dependence profile, the dominance of companies belonging to cyclical industries in the stock market index, the role of monetary policy in containing speculative bubbles, and the forceful quantitative easing have been offered to spell out the convolution of the focal issue.

Keywords: Oil price; China’s slowdown; G7 equities; QQ approach. (search for similar items in EconPapers)
JEL-codes: C58 G11 G15 Q43 (search for similar items in EconPapers)
Date: 2016-02
New Economics Papers: this item is included in nep-ene
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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