The effect of oil price on industrial production and on stock returns
AbstractThis paper analyzes the relationship between oil price shocks and the industrial production and between oil price shocks and the stock returns. The objective is to study which relationship is stronger or which variables reacts more rapidly to changes in oil price. We develop a Markov switching model assuming that there exits a latent variable (the state of the economy) which determines the mean of industrial production and the volatility of stock returns. The results show that raises in oil price affects in a negative and statistically significant way to stock returns and to industrial production, but the effect on stock returns is stronger than on industrial production.
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Bibliographic InfoPaper provided by Department of Economic Theory and Economic History of the University of Granada. in its series ThE Papers with number 05/18.
Length: 20 pages
Date of creation: 05 Sep 2005
Date of revision:
oil price; Markov switching models.;
Find related papers by JEL classification:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-09-17 (All new papers)
- NEP-BEC-2005-09-17 (Business Economics)
- NEP-ENE-2005-09-17 (Energy Economics)
- NEP-MAC-2005-09-17 (Macroeconomics)
- NEP-RMG-2005-09-17 (Risk Management)
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