Analyzing causality between epidemics and oil prices: Role of the stock market

This research investigates the impacts of three categories of epidemics on crude oil price using both an interaction term as well as a system of simultaneous equations, employing data from throughout the world for the period 1976 to 2018. Our empirical evidence confirms that epidemic strength is a key factor influencing oil price, and that the effect spreads from the stock market due to speculative investor behavior. Considering the wide heterogeneity of national development and income, the contagion channel of the stock market does not exhibit differences among countries based on variation in income level, but the influence of epidemics on oil price and on the contagion channel is significant in OECD countries. One policy implication is that countries should enact synergistic governance to prevent epidemic-based contagion. Moreover, national governments need to increase communication of information and decrease information asymmetry in the stock market. (C) 2021 Economic Society of Australia, Queensland. Published by Elsevier B.V. All rights reserved.

Automated summary

The study reveals that epidemic strength is a key factor in influencing crude oil prices, particularly significant in OECD countries. Countries should enhance information dissemination, reduce information asymmetry, and take synergistic measures to prevent epidemic-based contagion.