The impact of oil price on stock returns in oil-exporting economies: The case of Russia and Norway

Abstract: The purpose of our paper is to examine the relationship and interactions between oil price movements and stock market indexes in main two oil exporting countries - Russia and Norway from January 1998 to March 2011, and test how and to what extent oil prices together with other variables influence stock markets. Apart from crude oil price, we also include to our model some macroeconomic explanatory variables that are directly linked to stock market performance as well as oil price movements. The notion of comparative analysis of oil price changes and stock market performance between a developing country- Russia and a developed country- Norway is also one of the major empirical aspects of our master thesis. First, we run simple OLS regression to understand the effect of oil prices on stock returns. Our results show evidence of an oil effect in both countries. In order to examine deeply the interaction and impact among different variables, we employ a VAR model. Results reveal a diverse pattern in all share and industrial level. For interpretation of results, we implement Granger causality and Impulse response analysis. Finally, for further analysis, we run asymmetric tests using dummy variables to show the difference between oil price increases and the normal case.