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Oil, the Baltic Dry index, market (il)liquidity and business cycles: evidence from net oil-exporting/oil-importing countries

Author

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  • Husaini Said

    (Perbadanan Tabung Amanah Islam Brunei (TAIB))

  • Evangelos Giouvris

    (Royal Holloway, University of London)

Abstract

The recent financial crisis has made (il)liquidity research more significant than ever. Galariotis and Giouvris (Int Rev Financ Anal 38:44–69, 2015) find evidence that market liquidity may contain information for predicting the state of the economy. Similar to (il)liquidity, oil is an important indicator of the future state of the economy (GDP). We consider five predictive variables, namely national/global illiquidity, foreign exchange, Baltic Dry, and oil. Our findings show that (1) global illiquidity provides greater overall explanatory power compared to national illiquidity (even for developed oil exporters: Norway, Canada, and Denmark). (2) Oil is the most important predictive variable for oil exporters (especially for emerging oil exporters suggesting over-reliance), while Baltic Dry appears to be more important for oil importers. (3) FX has extra power over financial variables mainly for emerging oil exporters. Finally, there is a two-way causality between GDP and our predictive variables: (4) For oil exporters, the two-way causality between oil and GDP remains, while for net oil importers, we observe a one-way causality from GDP to oil.

Suggested Citation

  • Husaini Said & Evangelos Giouvris, 2019. "Oil, the Baltic Dry index, market (il)liquidity and business cycles: evidence from net oil-exporting/oil-importing countries," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 33(4), pages 349-416, December.
    • Handle: RePEc:kap:fmktpm:v:33:y:2019:i:4:d:10.1007_s11408-019-00337-0
    DOI: 10.1007/s11408-019-00337-0
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    2. Zihui Han & Xiangcheng Zhu & Zhenqing Su, 2024. "Forecasting Maritime and Financial Market Trends: Leveraging CNN-LSTM Models for Sustainable Shipping and China’s Financial Market Integration," Sustainability, MDPI, vol. 16(22), pages 1-24, November.
    3. Adewuyi, Adeolu O. & Adeleke, Musefiu A. & Tiwari, Aviral Kumar & Aikins Abakah, Emmanuel Joel, 2023. "Dynamic linkages between shipping and commodity markets: Evidence from a novel asymmetric time-frequency method," Resources Policy, Elsevier, vol. 83(C).
    4. Monge, Manuel & Romero Rojo, María Fátima & Gil-Alana, Luis Alberiko, 2023. "The impact of geopolitical risk on the behavior of oil prices and freight rates," Energy, Elsevier, vol. 269(C).
    5. Miao Su & Keun Sik Park & Sung Hoon Bae, 2024. "A new exploration in Baltic Dry Index forecasting learning: application of a deep ensemble model," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 26(1), pages 21-43, March.

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    More about this item

    Keywords

    Liquidity; Macroeconomic indicators; Oil prices; Baltic Dry; Oil-importing countries; Oil-exporting countries;
    All these keywords.

    JEL classification:

    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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