Improving the predictability of stock returns with global financial cycle and oil price in oil-exporting African countries

Oil shocks and volatility of green investments: GARCH-MIDAS analyses

“…Changes in oil prices, using level value or log-differences as proxy variables, have been applied in many empirical literature; but an attempt to break oil price fluctuations into four sources has only recently been documented in the literature (Baumeister and Hamilton, 2019), as a follow-up to the initial attempt to disaggregate oil shocks into their various components to determine their distinct impacts (Kilian, 2009;Kilian and Park, 2009). These oil shocks, which include economic activity, supply, aggregate demand, and precautionary demand shocks, are defined based on perceived causes of oil price fluctuations, and are now being increasingly used in the literature (see Adekoya and Oliyide, 2020;Salisu and Gupta, 2020;Adekoya, Ogunbowale, Akinseye and Oduyemi, 2021). Supply shock expectations of oil are majorly influenced by the availability of crude oil supply and the uncertainty regarding its continuous availability of its production.…”

“…Green investments, like other assets, are prone to oil shocks and their volatility due to unforeseen circumstances in the oil markets mentioned earlier. It is noted in Park et al (2020) that green assets are sensitive to oil shocks and induced volatility by these shocks is very persistent in the green investment market, leaving the market in a state of inefficiency (Adekoya et al, 2021). Thus, investors are likely to be disinterested, raising severe fears which can hinder them from achieving common goal of environmental sustainability.…”

The Nexus between Oil Price and Stock Returns from a Global Economic Perspective

“…The results also show the discount rate and liquidity routes for oil to forecast returns. Oluwasegun et al (2021) focused on increasing the certainty of stock returns using the oil price and the world financial cycle. They noted the necessity to identify variables capable of precisely projecting stock returns in defiance of periodic market volatility that causes diminution for investors.…”

“…The current financial crisis, pandemics, policy uncertainty, and other issues have all substantially influenced the world's financial environment, making it exceedingly unstable owing to the growing level of financial market integration. This has affected the global financial market as well as the domestic stock market, which has equally received some negative ripple effects (Oluwasegun et al, 2021). This present research is inspired by the need to reflect on the recent situation in international finance and the regular market instability that causes the diminution of investors.…”