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Short and long-term links between oil prices and stock markets in Europe

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Author Info

  • Arouri Mohamed El Hedi

    ()
    (LEO & EDHEC Business School)

  • Jawadi Fredj

    ()
    (Amiens School of Management and EconomiX-CNRS-University of Paris 10)

Abstract

Although the assumption in the financial press is that fluctuations in the price of oil affect stock market prices, empirical evidence of the impact of these fluctuations on stock returns has been mixed. Unlike other empirical studies, which have focused largely on broad market indices (national and/or regional indices), our study adds to knowledge of the relationship between oil prices and stock markets in Europe by testing for short- and long-term links in the aggregate as well as sector by sector. We show that the response of stock returns to oil price changes differs greatly depending on the sector of activity. In particular, we show that changes in the price of oil have negative effects on short- and long-term stock prices in Food & Beverages.

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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 30 (2010)
Issue (Month): 1 ()
Pages: 817-828

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Handle: RePEc:ebl:ecbull:eb-09-00534

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Keywords: oil prices; short and long term analysis; sector indices.;

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  1. Kilian, Lutz, 2005. "Exogenous Oil Supply Shocks: How Big Are They and How Much do they Matter for the US Economy?," CEPR Discussion Papers 5131, C.E.P.R. Discussion Papers.
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  3. Mohamed El Hedi Arouri & Julien Fouquau, 2009. "On the short-term influence of oil price changes on stock markets in GCC countries: linear and nonlinear analyses," Working Papers hal-00387103, HAL.
  4. Marc Gronwald, 2008. "Large Oil Shocks and the US Economy: Infrequent Incidents with Large Effects," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 151-172.
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  9. Sadorsky, Perry, 2001. "Risk factors in stock returns of Canadian oil and gas companies," Energy Economics, Elsevier, vol. 23(1), pages 17-28, January.
  10. Nicholas Apergis & Stephen M. Miller, 2008. "Do Structural Oil-Market Shocks Affect Stock Prices?," Working papers 2008-51, University of Connecticut, Department of Economics.
  11. Boyer, M. Martin & Filion, Didier, 2007. "Common and fundamental factors in stock returns of Canadian oil and gas companies," Energy Economics, Elsevier, vol. 29(3), pages 428-453, May.
  12. Peter Baláž & Andrej Londarev, 2006. "Oil and its position in the process of globalization of the world economy," Politická ekonomie, University of Economics, Prague, vol. 2006(4), pages 508-528.
  13. Cologni, Alessandro & Manera, Matteo, 2008. "Oil prices, inflation and interest rates in a structural cointegrated VAR model for the G-7 countries," Energy Economics, Elsevier, vol. 30(3), pages 856-888, May.
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