Energy prices and stock markets: Does energy supply security matter?

This study examines the interactions between stock markets, oil prices, and security of energy supply in 25 countries with the highest energy consumption from 1980 to 2018. We utilize bi- and multi-variate models with and without smooth structural breaks. The novel Fourier expansion to the Toda-Yamamoto causality procedure highlights the importance of smooth structural shifts in model specification. The new methodology uncovers significantly stronger impact of energy security on the causal link between energy and stock markets. Our results offer new and important implications for policymakers, investors, and researchers.