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Oil price shocks and stock market activities: Evidence from oil-importing and oil-exporting countries

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  • Wang, Yudong
  • Wu, Chongfeng
  • Yang, Li
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    Abstract

    While the relationship between oil prices and stock markets is of great interest to economists, previous studies do not differentiate oil-exporting countries from oil-importing countries when they investigate the effects of oil price shocks on stock market returns. In this paper, we address this limitation using a structural VAR analysis. Our main findings can be summarized as follows: First, the magnitude, duration, and even direction of response by stock market in a country to oil price shocks highly depend on whether the country is a net importer or exporter in the world oil market, and whether changes in oil price are driven by supply or aggregate demand. Second, the relative contribution of each type of oil price shocks depends on the level of importance of oil to national economy, as well as the net position in oil market and the driving forces of oil price changes. Third, the effects of aggregate demand uncertainty on stock markets in oil-exporting countries are much stronger and more persistent than in oil-importing countries. Finally, positive aggregate and precautionary demand shocks are shown to result in a higher degree of co-movement among the stock markets in oil-exporting countries, but not among those in oil-importing countries.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Comparative Economics.

    Volume (Year): 41 (2013)
    Issue (Month): 4 ()
    Pages: 1220-1239

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    Handle: RePEc:eee:jcecon:v:41:y:2013:i:4:p:1220-1239

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    Web page: http://www.elsevier.com/locate/inca/622864

    Related research

    Keywords: Oil prices; Stock markets; Oil-importing and oil-exporting countries; Oil demand shock; Oil supply shock;

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    Cited by:
    1. Beckmann, Joscha & Czudaj, Robert, 2013. "Is there a homogeneous causality pattern between oil prices and currencies of oil importers and exporters?," Energy Economics, Elsevier, Elsevier, vol. 40(C), pages 665-678.
    2. Wang, Yudong & Wu, Chongfeng, 2013. "Are crude oil spot and futures prices cointegrated? Not always!," Economic Modelling, Elsevier, Elsevier, vol. 33(C), pages 641-650.
    3. Heni Boubaker & Nadia Sghaier, 2013. "Instability and time-varying dependence structure between oil prices and stock markets in GCC countries," Working Papers, Department of Research, Ipag Business School 2013-023, Department of Research, Ipag Business School.
    4. Guglielmo Maria Caporale & Faek Menla Ali & Nicola Spagnolo, 2014. "Oil Price Uncertainty and Sectoral Stock Returns in China: A Time-Varying Approach," CESifo Working Paper Series, CESifo Group Munich 4881, CESifo Group Munich.

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