Threshold Cointegration Relationships between Oil and Stock Markets

This paper aims to study the oil price adjustment dynamics and to implicitly test the efficiency hypothesis for the oil market. Thus, we study the oil price evolution in a nonlinear framework and investigate the interdependence hypothesis between oil and stock markets for two countries: Mexico and the Philippines. On the one hand, we highlight significant linear linkage between stock markets and oil industry indicating the presence of significant long-run relationships between oil and stock markets, and rejecting efficient capital market hypothesis. On the other hand, we propose a new nonlinear modeling to reproduce the oil price adjustment dynamics. It takes into account both stock and oil market variations.