Precedence and Exogeneity of Oil to the Stock Markets

Abstract

This study investigates whether changes of oil price would have precedence,

exogeneity and causal prediction to the stock markets. The result

shows that changes of oil price have precedence over the stock returns in the

United States, Japan and Korea markets. And the evidence suggests that

there be exogeneity of oil to the stock markets because the stock returns can

be causally interpreted by the current or past changes of oil price during the

past two decades. Thus changes of oil price would contain any information

exploitable in forecasting the stock markets and have the predictive value of

leading indicators.