In this work, the impact of oil price shocks on the stock exchanges of three countries in the Caspian Basin − Iran, Kazakhstan and Russia − was examined through a structural vector autoregression (SVAR) model. For the research, monthly data from the stock exchanges, the oil price, inflation, industrial production and exchange rates were collected between March 2005 and June 2018. According to the results of variance decomposition, in these three countries, the impact of negative oil price shocks on the stock exchanges was stronger than that of positive shocks, and constituted the largest source of changes in the three stock exchanges. In addition, according to the results of impulse response functions, the response of the stock exchanges in the three countries to negative oil shocks was highly significant. Consequently, these countries should avoid macroeconomic imbalances and falls in their stock exchanges due to the negative impact of the oil price, and should instead focus on industrial production that will contribute to exports. In this way, they can avoid the negative impact of oil price shocks on their stock exchanges.

Introduction

In this work, the main aim was to examine the asymmetric impact of Brent oil price shocks on the stock exchanges of three Caspian Basin countries through structural vector autoregression (SVAR). It is known that Caspian Basin countries are not globally strong in medium- and high-tech industrial production,1 and that they are highly dependent on oil production for export. Moreover, their own economies are susceptible to positive or negative impacts from oil prices. In this research, it is assumed that stock exchanges are largely dependent on fluctuations in the oil price in these countries. Oil price shocks are taken to be one variable that exerts a significant impact on their stock exchanges. In addition, it is assumed that the exchange rate and inflation can also influence the stock exchanges. Hence, the main question is how the oil price shocks, exchange rates, inflation and industrial production influence the stock markets. If there are significant impacts on stock exchanges, which variables show the strongest effects and how great are the impacts in these countries? Furthermore, as it is assumed that the oil price can have a significant impact on stock exchanges, then what about the impact of positive or negative shocks? In other words, which shocks have the stronger impacts on stock exchanges? This work seeks to answer these questions.