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Oil prices, US stock return, and the dependence between their quantiles*

* This paper has been replicated

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  • Sim, Nicholas
  • Zhou, Hongtao

Abstract

In this article, we examine the relationship between oil prices and US equities by proposing a novel quantile-on-quantile (QQ) approach to construct estimates of the effect that the quantiles of oil price shocks have on the quantiles of the US stock return. This approach captures the dependence between the distributions of oil price shocks and the US stock return and uncovers two nuance features in the oil–stock relationship. First, large, negative oil price shocks (i.e. low oil price shock quantiles) can affect US equities positively when the US market is performing well (i.e. at high US return quantiles). Second, while negative oil price shocks could affect the US stock market, the influence of positive oil price shocks is weak, which suggests that the relationship between oil prices on the US equities is asymmetric.

Suggested Citation

  • Sim, Nicholas & Zhou, Hongtao, 2015. "Oil prices, US stock return, and the dependence between their quantiles," Journal of Banking & Finance, Elsevier, vol. 55(C), pages 1-8.
    • Handle: RePEc:eee:jbfina:v:55:y:2015:i:c:p:1-8
    DOI: 10.1016/j.jbankfin.2015.01.013
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    References listed on IDEAS

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    Replication

    This item has been replicated by:
  • Doko Tchatoka, Firmin & Masson, Virginie & Parry, Sean, 2019. "Linkages between oil price shocks and stock returns revisited," Energy Economics, Elsevier, vol. 82(C), pages 42-61.

    • More about this item

    Keywords

    Oil prices; Stock return; Local linear regression; Quantile regression;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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    1. Oil prices, US stock return, and the dependence between their quantiles (J Banking & Finance 2015) in ReplicationWiki

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