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Detection of Structural Regimes and Analyzing the Impact of Crude Oil Market on Canadian Stock Market: Markov Regime-Switching Approach

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  • Mohammadreza Mahmoudi
  • Hana Ghaneei

Abstract

This study aims to analyze the impact of the crude oil market on the Toronto Stock Exchange Index (TSX)c based on monthly data from 1970 to 2021 using Markov-switching vector autoregressive (MSI-VAR) model. The results indicate that TSX return contains two regimes, including: positive return (regime 1), when growth rate of stock index is positive; and negative return (regime 2), when growth rate of stock index is negative. Moreover, regime 1 is more volatile than regime 2. The findings also show the crude oil market has negative effect on the stock market in regime 1, while it has positive effect on the stock market in regime 2. In addition, we can see this effect in regime 1 more significantly in comparison to regime 2. Furthermore, two period lag of oil price decreases stock return in regime 1, while it increases stock return in regime 2.

Suggested Citation

  • Mohammadreza Mahmoudi & Hana Ghaneei, 2021. "Detection of Structural Regimes and Analyzing the Impact of Crude Oil Market on Canadian Stock Market: Markov Regime-Switching Approach," Papers 2109.01046, arXiv.org, revised Oct 2021.
    • Handle: RePEc:arx:papers:2109.01046
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    References listed on IDEAS

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    Cited by:

    1. Mohammadreza Mahmoudi, 2021. "Identifying the Main Factors of Iran's Economic Growth using Growth Accounting Framework," Papers 2109.02787, arXiv.org, revised Oct 2021.

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