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Oil shocks, policy uncertainty and stock market return

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  • Kang, Wensheng
  • Ratti, Ronald A.

Abstract

Oil price shocks and economic policy uncertainty are interrelated and influence stock market return. For the U.S. an unanticipated increase in policy uncertainty has a significant negative effect on real stock returns. A positive oil-market specific demand shock (indicating greater concern about future oil supplies) significantly raises economic policy uncertainty and reduces real stock returns. The direct effects of oil shocks on real stock returns are amplified by endogenous policy uncertainty responses. Economic policy uncertainty and oil-market specific demand shock account for 19% and 12% of the long-run variability in real stock returns, respectively. As a robustness check, (domestic) economic policy uncertainty is shown to also significantly influence real stock returns in Europe and in energy-exporting Canada.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Financial Markets, Institutions and Money.

Volume (Year): 26 (2013)
Issue (Month): C ()
Pages: 305-318

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Handle: RePEc:eee:intfin:v:26:y:2013:i:c:p:305-318

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Web page: http://www.elsevier.com/locate/intfin

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Keywords: Oil shocks; Economic policy uncertainty; Stock returns; Structural VAR;

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References

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  1. repec:ipg:wpaper:36 is not listed on IDEAS
  2. Chen, Wang & Hamori, Shigeyuki & Kinkyo, Takuji, 2014. "Macroeconomic impacts of oil prices and underlying financial shocks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 29(C), pages 1-12.
  3. Mensi, Walid & Hammoudeh, Shawkat & Reboredo, Juan Carlos & Nguyen, Duc Khuong, 2014. "Do global factors impact BRICS stock markets? A quantile regression approach," Emerging Markets Review, Elsevier, vol. 19(C), pages 1-17.
  4. Tsangyao Chang & Wen-Yi Chen & Rangan Gupta & Duc Khuong Nguyen, 2013. "Are Stock Prices Related to Political Uncertainty Index in OECD Countries? Evidence from Bootstrap Panel Causality Test," Working Papers 201360, University of Pretoria, Department of Economics.

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