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Oil Price Shocks, Firm Uncertainty, And Investment

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  • Lee, Kiseok
  • Kang, Wensheng
  • Ratti, Ronald A.

Abstract

It is found that an oil price shock in interaction with a firm’s stock price volatility has a ‎negative effect on investment by that firm, both in the short and long-term. In the presence of ‎this interaction term, linear variables in oil price shocks are not statistically significant. There is ‎evidence that for the short-term effects of the interaction variable, the particular magnitude of an ‎oil price shock may not be as important as the fact that there is an oil price shock. For the long-‎term effects, however, the magnitude of the oil price shock does matter. Over a longer horizon, ‎oil price shocks depress investment more at firms facing greater uncertainty. An increase in firm ‎stock price volatility continues to reduce the link between sales growth and investment in the ‎presence of oil price shocks as in Bloom et al. (2007).‎

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Bibliographic Info

Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 15 (2011)
Issue (Month): S3 (November)
Pages: 416-436

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Handle: RePEc:cup:macdyn:v:15:y:2011:i:s3:p:416-436_00

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References

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  1. Park, Jungwook & Ratti, Ronald A., 2008. "Oil price shocks and stock markets in the U.S. and 13 European countries," Energy Economics, Elsevier, vol. 30(5), pages 2587-2608, September.
  2. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  3. Nicholas Bloom, 2007. "The Impact of Uncertainty Shocks," NBER Working Papers 13385, National Bureau of Economic Research, Inc.
  4. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
  5. Lutz Kilian & Cheolbeom Park, 2009. "The Impact Of Oil Price Shocks On The U.S. Stock Market," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(4), pages 1267-1287, November.
  6. Sadorsky, Perry, 1999. "Oil price shocks and stock market activity," Energy Economics, Elsevier, vol. 21(5), pages 449-469, October.
  7. John V. Leahy & Toni M. Whited, 1995. "The Effect of Uncertainty on Investment: Some Stylized Facts," NBER Working Papers 4986, National Bureau of Economic Research, Inc.
  8. R Blundell & Steven Bond, . "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
  9. Hamilton, James D, 1988. "A Neoclassical Model of Unemployment and the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 593-617, June.
  10. Ichiro Fukunaga & Naohisa Hirakata & Nao Sudo, 2009. "The Effects of Oil Price Changes on the Industry-Level Production and Prices in the U.S. and Japan," IMES Discussion Paper Series 09-E-24, Institute for Monetary and Economic Studies, Bank of Japan.
  11. Driesprong, Gerben & Jacobsen, Ben & Maat, Benjamin, 2008. "Striking oil: Another puzzle?," Journal of Financial Economics, Elsevier, vol. 89(2), pages 307-327, August.
  12. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119, October.
  13. Robert C. Merton, 1980. "On Estimating the Expected Return on the Market: An Exploratory Investigation," NBER Working Papers 0444, National Bureau of Economic Research, Inc.
  14. Kiseok Lee & Shawn Ni & Ronald A. Ratti, 1995. "Oil Shocks and the Macroeconomy: The Role of Price Variability," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 39-56.
  15. Aloui, Chaker & Jammazi, Rania, 2009. "The effects of crude oil shocks on stock market shifts behaviour: A regime switching approach," Energy Economics, Elsevier, vol. 31(5), pages 789-799, September.
  16. Mork, Knut Anton, 1989. "Oil and Macroeconomy When Prices Go Up and Down: An Extension of Hamilton's Results," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 740-44, June.
  17. Hooker, Mark A., 1996. "What happened to the oil price-macroeconomy relationship?," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 195-213, October.
  18. Rahman, Sajjadur & Serletis, Apostolos, 2011. "The Asymmetric Effects Of Oil Price Shocks," Macroeconomic Dynamics, Cambridge University Press, vol. 15(S3), pages 437-471, November.
  19. Lee, Kiseok & Ni, Shawn, 2002. "On the dynamic effects of oil price shocks: a study using industry level data," Journal of Monetary Economics, Elsevier, vol. 49(4), pages 823-852, May.
  20. John Elder & Apostolos Serletis, 2010. "Oil Price Uncertainty," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(6), pages 1137-1159, 09.
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Cited by:
  1. Claudio Morana, 2012. "The Oil price-Macroeconomy Relationship since the Mid- 1980s: A global perspective," Working Papers 2012.28, Fondazione Eni Enrico Mattei.
  2. Caglayan, Mustafa & Xu, Bing, 2014. "Allocation effects of uncertainty on resources in Japan," Economics Letters, Elsevier, vol. 122(1), pages 23-26.
  3. Kang, Wensheng & Ratti, Ronald A., 2013. "Oil shocks, policy uncertainty and stock market return," MPRA Paper 49008, University Library of Munich, Germany.

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