| Summary: | The paper investigates the interrelationship between the stock market and the crude oil price for the Nordic countries (Denmark, Finland, Iceland, Norway, and Sweden) and two other European countries that have the highest imports (Germany) and exports (Russia) of oil using data from 1995 to the end of 2015. We found that the time-varying correlation among the oil exporting (importing) countries are different. We also found that the two oil exporting countries (Norway and Russia) have higher integration with the Brent and West Texas Intermediate (WTI) oil indices, which reveals that these markets are less attractive to international investors during periods of high turbulence. Furthermore, contrary to previous literature documenting negative relations between the stock market and crude oil, our results demonstrate that, although the negative association was evident up to the period prior to the global financial crisis (GFC), starting from the GFC period (especially for the oil importing countries), we noticed a positive time-varying relationship that continued until the end of our sample study. In addition, the time-varying correlation response was more pronounced during the financial market turmoil of 2015. Further, we investigated the two price indices (Brent and WTI) using the Markov regime-switching autoregressive (MRS-AR) approach to model periods of high volatility (turbulence) and low volatility (stable period). The Markov model revealed that in regime 0 (1998-2002, 2008-2009, and 2015), which can be characterized as the most volatile period for the oil market, the probability reached close to 1. We noticed that during the GFC and in the period prior to the GFC, the time-varying relationship was positive and at a higher level in high-volatility regimes, whereas during low-volatility regimes the time-varying relationship was negative and at a low level. oil price, oil importing, oil exporting volatility, financial crisis
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