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This study discusses the economic significance of the relationship between oil price changes and emerging markets equity returns. It extends the literature by obtaining significant Granger causalities and impulse response functions for the daily returns over the last decade on the emerging markets of Russia and China. Furthermore, it is shown that a trading rule based on a bivariate Vector Autoregresive (VAR(p)) model outperforms the Russian and Chinese stock index in terms of risk and return, even when transaction costs are taken into account. Implementing the bootstrap methodology to test the results, it is proved that oil price fluctuations significantly contribute to the risk profile of the trading strategy for Russian market and improve the risk-return characteristics for Chinese stock trading.
