Abstract:
This study examined the connection between global shocks and stock returns in the automobile sector. The global shocks considered are the West Texas Intermediate (WTI) crude oil price shocks, the Russia-Ukraine war representing geopolitical risk, and COVID-19, which are modelled with selected automobile stocks to arrive at the findings of this study. Eight automobile stocks were employed with four selected from each market, thus the Shanghai Stock Exchange (SSE) and the New York Stock Exchange (NYSE). Wavelet coherence, Diks and Panchenko nonlinear causality test, and quantile regression analysis were employed in analysing time series daily data to arrive at the study’s objectives. Findings revealed oil price shocks and automobile stock returns to be significantly connected. However, this co-movement varies in time and frequency as well as stock markets as SSE showed heightened levels of correlation compared to the NYSE. Results from the causality test also recorded a significant level of causality between COVID-19 and automobile stock returns. However, the Russia-Ukraine war reveals no significant relationship with automobile stock returns. It was recommended that investors, since black swan events, such as COVID-19, negatively impact some sectors, notably the automobile sector, investors should make portfolio investment decisions that will serve as risk diversification for their investment during such occurrences. Policymakers should implement measures that stabilize the price of oil by encouraging alternative sources of energy to reduce volatility and promote market stability. Also, automobile companies may consider diversified supply chains for key automobile materials to avoid effects posed by disruptions in a single region.
