Economic Policy Uncertainty, Global Oil Price, Interest Rate, and Stock Market Returns - A Cointegration and Causality Analysis

Abstract

This study examines the time-varying cointegration and causal relationship between stock market indices, economic policy uncertainties, changes in global oil price and variation in short-term interest rates in two countries such as Russia and China, the largest oil exporting and importing countries respectively. The empirical analysis is based on the Johanssen (1996) cointegration and VEC Granger and Morris’s (1976) causality test with the selected variables in view of monthly data over the period from 1996:01 to 2016:12. The outcome of the Johansen tests indicated the existence of a long-run relationship among variables both in China and Russia. In the short run, the Block Exogeneity Wald Tests have indicated the presence of unidirectional granger causality between variables in both countries. The study has taken into account the 1998 Russian crisis and the 2008/09 global financial crisis.