Oil and S&P 500 Markets: Evidence from the Nonlinear Model


  • Yen-Hsien Lee Chung Yuan Christian University
  • Hao Fang Graduate Institute of Assets and Property Management, Hwa Hsia Institute of Technology


This study begins by using a MTAR model to explore the asymmetric effects of error corrections between oil prices in the U.S.A and S&P 500 prices under different regimes. After confirming the lead/lag relationship between the S&P 500 and oil prices, we employ a STECM to analyze the short-run return dynamics when there are deviations from the equilibrium between the two variables. Our empirical evidence shows that an asymmetric co-integration relationship exists between the S&P 500 and oil prices. In addition, the results of the Granger causality test based on the TECM document the unidirectional relationship from the oil price to the S&P 500 price. Moreover, the short-run adjustments of the mean reversion to equilibrium follow the LSTECM. The contribution of this study might be in that the LSTECM-GARCH model is well suited to describing the short-run return dynamics of the disequilibrium between the oil prices and S&P 500 prices in the U.S.A.

Keywords: Threshold Co-integration Test; Threshold Error-Correction Model; Stock Market; Oil Market; STECM-GARCH Model

JEL Classifications: C13; C22; C32; G18; G10; Q42


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Author Biography

Yen-Hsien Lee, Chung Yuan Christian University

Department of Finance




How to Cite

Lee, Y.-H., & Fang, H. (2012). Oil and S&P 500 Markets: Evidence from the Nonlinear Model. International Journal of Economics and Financial Issues, 2(3), 272–280. Retrieved from https://www.econjournals.com/index.php/ijefi/article/view/201