The Impact of Oil Price Shocks on the Stock Market Return and Volatility Relationship

We study the impact of oil price shocks on the U.S. stock market volatility. We jointly analyze three different structural oil market shocks (i.e., aggregate demand, oil supply, and oil-specific demand shocks) and stock market volatility using a structural vector autoregressive model. Identification is achieved by assuming that the price of crude oil reacts to stock market volatility only with delay. This implies that innovations to the price of crude oil are not strictly exogenous, but predetermined with respect to the stock market. We show that volatility responds significantly to oil price shocks caused by unexpected changes in aggregate and oil-specific demand, whereas the impact of supply-side shocks is negligible.

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Explore the Impact of the Trading Value, The Oil Price and Quantitative Easing Policy on the Taiwan and Korea Stock Market Return with Quantile Regression

Asian Economic and Financial Review ◽

10.18488/journal.aefr/2017.7.1/102.1.15.26 ◽

2017 ◽

Vol 7 (1) ◽

pp. 15-26 ◽

Cited By ~ 1

Author(s):

Tzu-Kuang Hsu ◽

Chin-Chang Tsai

Keyword(s):

Stock Market ◽

Quantile Regression ◽

Oil Price ◽

Quantitative Easing ◽

Market Return ◽

Stock Market Return ◽

The Impact

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Further insights into the oil and equity market relationship

Studies in Economics and Finance ◽

10.1108/sef-12-2017-0349 ◽

2019 ◽

Vol 36 (2) ◽

pp. 291-310 ◽

Cited By ~ 1

Author(s):

Olfa Belhassine ◽

Amira Ben Bouzid

Keyword(s):

Stock Market ◽

Price Volatility ◽

Oil Price ◽

Subprime Crisis ◽

Oil Price Shocks ◽

Price Shocks ◽

Content Type ◽

Asymmetric Effects ◽

Oil Price Volatility ◽

The Impact

Purpose This paper aims to assess the asymmetric effects of oil price shocks and the impact of oil price volatility on the Eurozone’s supersector returns, with a particular emphasis on the impact of the subprime crisis and the euro debt crisis (EDC) on this relationship. Design/methodology/approach Empirical data consist of daily observations of the 19 EURO STOXX supersector indices and the Brent crude oil price index for the period January 2001 to August 2015. This paper uses a non-linear multifactor market model. This model accounts for heteroscedasticity and breakpoints that are identified by the Bai and Perron (1998, 2003) tests. Findings The results show that supersector returns are sensitive to oil price shocks. However, in most cases, their responsiveness to oil price volatility is not significant. The relationship between oil price shocks and supersector returns changes through time and depends on the sector. Financial turbulence affects the oil-stock market nexus. In most cases, the subprime crisis has had a positive impact on the oil-stock market relationship, whereas the EDC has had an overall negative effect. Before the subprime crisis, there is an evidence of asymmetric effects for some supersectors. Meanwhile, for most sectors, the asymmetric effects disappear after 2008. Originality/value The study improves understanding of the interaction between oil price risk and the Eurozone sector indices returns. Furthermore, it enables global investors to manage the risk inherent to the portfolio managers’ positions.

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