Testing for linear and nonlinear causality between crude oil price changes and stock market returns

This paper examines both the linear and nonlinear causal relationships between crude oil price changes and stock market returns for the United States. In particular, the study applied a battery of unit root tests to ascertain the time series properties of crude oil price changes and stock market returns. The linear and nonlinear causality tests were conducted through the standard VAR and the M-G frameworks, respectively. The results from both the linear and nonlinear unit root tests indicate that crude oil price changes and stock market returns are level stationary. The results from the standard VAR model provide evidence of bidirectional causality between crude oil price changes and stock market returns. The results from the M-G causality test support the finding of nonlinear bidirectional causality between crude oil price changes and stock market returns. -- crude oil prices ; nonlinear causality ; stock market returns ; BDS ; structural breaks