ASYMMETRICAL EFFECTS OF OIL PRICE SHOCKS ON STOCK INDICES OF SELECTED EU MEMBERS

Abstract

Abstract: The process of deepening the economic integration of European economies reached its peak with the formation of a supranational entity for conducting monetary policy. However, the high degree of trade and financial integration of the market also implied the vulnerability of the economic union in terms of reacting to external shocks with divergent effects, such as oil shocks. Due to the wide use of oil as a production input or even the dependence of production on its import, fluctuating oil prices is a crucial category to which countries around the world are vulnerable, especially European economies with the relatively highest degree of import dependence in the global economy. The lack of prompt reactions of EU supranational bodies to sudden changes in oil prices points to the structural exposure of the economic union and its members to the spillover effects of oil shocks. This research aims to indicate the asymmetric effects of oil price fluctuations on the stock market indices of selected EU member states. The empirical findings are based on a descriptive analysis of the relationship between stock market indices and oil price fluctuations on a sample of large oil importers (Germany, France and the Netherlands) and smaller oil importers (Ireland, Bulgaria and Croatia) in the period 2013-2023. The results of the research indicate an asymmetric mechanism of the impact of oil shocks on the financial markets of EU member states: direct movement of the stock market indices of smaller oil importers, that is, inverse movement of the stock market indices of larger oil importers according to oil price fluctuations. Empirical findings apostrophize the vulnerability of the EU as an economic union in the context of the absence of key countercyclical policies as a mechanism for responding to the anomalies of the highly integrated markets of the member states in the circumstances of asymmetric (oil) external shocks.