Edinburgh Napier University

  Existing studies have purely paid attention to the relationship between oil price and stock returns or the relationship between oil price and country risks; however, simultaneous correlations among the three are highly neglected. Using monthly panel data from 31 countries between 2000 and 2020, we simultaneously examine the correlations among oil prices, country risks, and stock returns. By adopting a panel vector autoregressive model (PVAR), our research finds that a positive shock to oil prices and stock returns reduces country economic risks. A positive shock to country risks (risk reduction) reduces oil prices and stock returns. In addition, the oil price has a positive impact on stock return in the short term and a negative effect in the long term. The stock return is also positively related to the oil prices. Our study contributes to understanding the correlation among the country risks, financial and oil markets.