Sains Malaysiana 50(4)(2021): 1143-1156

http://doi.org/10.17576/jsm-2021-5004-24

Oil Price Shocks and Energy Stock Returns of ASEAN-5 Countries: Evidence from Ready’s (2018) Decomposition Technique in a Markov Regime Switching Framework

(Kejutan Harga Minyak dan Pulangan Stok Tenaga Negara-Negara ASEAN-5: Pembuktian daripada Teknik Penguraian Ready (2018) dalam Kerangka Peralihan Rejim Markov)

ADILAH AZHARI¹, MUKHRIZ IZRAF AZMAN AZIZ¹, YONG KANG CHEAH¹ & HAZRUL SHAHIRI²*

¹Department of Economics and Agribusiness, School of Economics, Finance and Banking, Universiti Utara Malaysia, 06010 Sintok, Kedah Darul Aman, Malaysia

²Centre of Inclusive and Sustainable Development, Faculty of Economics and Management, Universiti Kebangsaan Malaysia, 43600 UKM Bangi, Selangor Darul Ehsan, Malaysia

Received: 21 May 2020/Accepted: 8 September 2020

ABSTRACT

The present study applies a new decomposition technique by Ready (2018) to estimate the impact of oil price shocks on stock return in a Markov Regime Switching framework. The approach solves certain shortcomings of the novel procedure from Kilian by incorporating daily forward-looking prices of traded financial asset. The regime switching regression provides the evidence of strong nonlinear association of stock returns to risk shocks and demand shocks despite the absence of strong regime effects. We also demonstrate that positive demand shocks increase stock returns, whereas positive risk shocks negatively impact stock returns. For supply shocks, findings show that oil supply shocks do not significantly impact stock returns for Malaysia and Singapore. For Indonesia, supply shocks have a significant positive effect only in high volatility state. In the case of Thailand and The Philippines, the effects of supply shocks are negative and significant in high volatility state; but are not significant in low volatility state. Overall, our results suggest that demand shock has a greater economic impact than supply and risk shocks as demonstrated previously by Kilian and Park and Ready.

Keywords: Asymmetric; crude oil price; Markov switching; stock return

ABSTRAK

Kajian ini menggunakan teknik baru nyahkomposisi yang dibangunkan oleh Ready untuk menganggar kesan kejutan harga minyak kepada pulangan saham dalam Model Peralihan Rejim Markov. Pendekatan ini berupaya menyelesaikan beberapa kekurangan dalam prosedur terdahulu oleh Kilian dengan mengambil kira harga masa depan harian aset kewangan yang diniagakan. Regresi peralihan rejim menunjukkan bukti tentang kewujudan hubungan yang kuat antara pulangan saham dengan kejutan risiko dan permintaan walaupun tanpa penglibatan kesan rejim yang kuat. Kajian ini juga memaparkan kejutan permintaan yang positif memberi peningkatan pulangan saham manakala kejutan risiko yang positif memberi kesan buruk kepada pulangan saham. Bagi kejutan penawaran pula, keputusan menunjukkan kejutan penawaran minyak tidak mempunyai kesan yang signifikan kepada pulangan saham di Malaysia dan Singapura. Bagi Indonesia, kejutan penawaran mempunyai kesan positif yang signifikan hanya dalam keadaan apungan yang tinggi. Bagi Thailand dan Filipina, kesan kejutan penawaran adalah negatif dan signifikan dalam keadaan apungan yang tinggi tetapi tidak signifikan dalam keadaan apungan rendah. Secara keseluruhan, keputusan telah mencadangkan kejutan permintaan mempunyai impak ekonomi yang lebih besar daripada kejutan penawaran dan risiko seperti ditunjukkan oleh Kilian dan Park dan Ready.

Kata kunci: Harga minyak mentah; maklumat tak simetri; peralihan Markov; pulangan saham

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*Corresponding author; email: hizuan@ukm.edu.my