A study of co-movements between oil price, stock index and exchange rate under a cross-bicorrelation perspective: the case of Mexico

TL;DR

This paper investigates the nonlinear co-movements between Mexican oil prices, stock index, and exchange rate from 1994 onwards, using advanced statistical tests to identify dynamic dependencies and specific epochs of interaction.

Contribution

It applies a cross-bicorrelation approach to detect nonlinear co-movements and epochs in Mexican markets, filling a gap in emerging market analysis.

Findings

Identified specific periods of nonlinear dependence among markets.

Detected dynamic co-movement patterns between oil prices, stocks, and exchange rates.

Provided insights into market interactions during different economic phases.

Abstract

In this chapter we studied the nonlinear co-movements between the Mexican Crude Oil price, the Mexican Stock Market Index and the USD/MXN Exchange Rate, for the sample period from 1994 to date. We used a battery of nonlinear tests, cf. (Patterson & Ashley, 2000) and one multivariate test, in order to determine the dynamic co-movement exerted from the oil prices to the stock and exchange rate markets. Such co-movement and time windows are exposed using the Brooks & Hinich (1999) cross- bicorrelation statistical test. The effects of oil spills on other markets have been studied from different angles and on several financial assets. In this study, we focus our attention on the detection, not only of the correlations amongst markets but on the epochs in which such nonlinear dependence might occur. This is important in order to understand better, how the markets that drive the economy interact with each other. We hope to contribute to the literature with such findings, filling a gap in the emerging markets context, in particular, for the Mexican case.