Do Structural Oil-Market Shocks Affect Stock Prices?
AbstractThis paper investigates how explicit structural shocks that characterize the endogenous character of oil price changes affect stock-market returns in a sample of eight countries – Australia, Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. For each country, the analysis proceeds in two steps. First, modifying the procedure of Kilian (2008a), we employ a vector error-correction or vector autoregressive model to decompose oil-price changes into three components: oil-supply shocks, global aggregate-demand shocks, and global oil-demand shocks. The last component relates to specific idiosyncratic features of the oil market, such as changes in the precautionary demand concerning the uncertainty about the availability of future oil supplies. Second, recovering the oil-supply shocks, global aggregate-demand shocks, and global oil-demand shocks from the first analysis, we then employ a vector autoregressive model to determine the effects of these structural shocks on the stock market returns in our sample of eight countries. We find that international stock market returns do not respond in a large way to oil market shocks. That is, the significant effects that exist prove small in magnitude.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Nevada, Las Vegas , Department of Economics in its series Working Papers with number 0917.
Length: 26 pages
Date of creation: Mar 2009
Date of revision:
Publication status: Published in Energy Economics, July 2009
real stock returns; structural oil-price shocks; variance decomposition;
Other versions of this item:
- Apergis, Nicholas & Miller, Stephen M., 2009. "Do structural oil-market shocks affect stock prices?," Energy Economics, Elsevier, vol. 31(4), pages 569-575, July.
- Nicholas Apergis & Stephen M. Miller, 2008. "Do Structural Oil-Market Shocks Affect Stock Prices?," Working papers 2008-51, University of Connecticut, Department of Economics.
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-06-10 (All new papers)
- NEP-BEC-2009-06-10 (Business Economics)
- NEP-CBA-2009-06-10 (Central Banking)
- NEP-ENE-2009-06-10 (Energy Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Shawkat Hammoudeh & Eisa Aleisa, 2004. "Dynamic Relationships among GCC Stock Markets and Nymex Oil Futures," Contemporary Economic Policy, Western Economic Association International, vol. 22(2), pages 250-269, 04.
- Steven J. Davis & John Haltiwanger, 1999.
"Sectoral Job Creation and Destruction Responses to Oil Price Changes,"
NBER Working Papers
7095, National Bureau of Economic Research, Inc.
- Davis, Steven J. & Haltiwanger, John, 2001. "Sectoral job creation and destruction responses to oil price changes," Journal of Monetary Economics, Elsevier, vol. 48(3), pages 465-512, December.
- James D. Hamilton, 2000.
"What is an Oil Shock?,"
NBER Working Papers
7755, National Bureau of Economic Research, Inc.
- Donald W. Jones, Paul N. Leiby and Inja K. Paik, 2004. "Oil Price Shocks and the Macroeconomy: What Has Been Learned Since 1996," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 1-32.
- Cong, Rong-Gang & Wei, Yi-Ming & Jiao, Jian-Lin & Fan, Ying, 2008. "Relationships between oil price shocks and stock market: An empirical analysis from China," Energy Policy, Elsevier, vol. 36(9), pages 3544-3553, September.
- Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-48, April.
- Sadorsky, Perry, 2001. "Risk factors in stock returns of Canadian oil and gas companies," Energy Economics, Elsevier, vol. 23(1), pages 17-28, January.
- Hong, Harrison & Torous, Walter & Valkanov, Rossen, 2002. "Do Industries Lead the Stock Market? Gradual Diffusion of Information and Cross-Asset Return Predictability," University of California at Los Angeles, Anderson Graduate School of Management qt6x49x543, Anderson Graduate School of Management, UCLA.
- Chao Wei, 2003. "Energy, the Stock Market, and the Putty-Clay Investment Model," American Economic Review, American Economic Association, vol. 93(1), pages 311-323, March.
- Robert Barsky & Lutz Kilian, 2004.
"Oil and the Macroeconomy Since the 1970s,"
NBER Working Papers
10855, National Bureau of Economic Research, Inc.
- Bodenstein, Martin & Erceg, Christopher J. & Guerrieri, Luca, 2011.
"Oil shocks and external adjustment,"
Journal of International Economics,
Elsevier, vol. 83(2), pages 168-184, March.
- Luca Guerrieri & Christopher Erceg & Martin Bodenstein, 2008. "Oil Shocks and External Adjustment," 2008 Meeting Papers 945, Society for Economic Dynamics.
- Martin Bodenstein & Christopher J. Erceg & Luca Guerrieri, 2007. "Oil shocks and external adjustment," International Finance Discussion Papers 897, Board of Governors of the Federal Reserve System (U.S.).
- Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
- Robert B. Barsky & Lutz Kilian, 2001.
"Do We Really Know that Oil Caused the Great Stagflation? A Monetary Alternative,"
NBER Working Papers
8389, National Bureau of Economic Research, Inc.
- Robert B. Barsky & Lutz Kilian, 2002. "Do We Really Know that Oil Caused the Great Stagflation? A Monetary Alternative," NBER Chapters, in: NBER Macroeconomics Annual 2001, Volume 16, pages 137-198 National Bureau of Economic Research, Inc.
- Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003.
"Testing for unit roots in heterogeneous panels,"
Journal of Econometrics,
Elsevier, vol. 115(1), pages 53-74, July.
- Tom Doan, . "IPSHIN: RATS procedure to implement Im, Pesaran and Shin panel unit root test," Statistical Software Components RTS00098, Boston College Department of Economics.
- Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
- Kilian, Lutz, 2006.
"Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market,"
CEPR Discussion Papers
5994, C.E.P.R. Discussion Papers.
- Lutz Kilian, 2009. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," American Economic Review, American Economic Association, vol. 99(3), pages 1053-69, June.
- Lee, Kiseok & Ni, Shawn, 2002. "On the dynamic effects of oil price shocks: a study using industry level data," Journal of Monetary Economics, Elsevier, vol. 49(4), pages 823-852, May.
- Lutz Kilian, 2008.
"Exogenous Oil Supply Shocks: How Big Are They and How Much Do They Matter for the U.S. Economy?,"
The Review of Economics and Statistics,
MIT Press, vol. 90(2), pages 216-240, May.
- 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.
- Kaul, Gautam & Seyhun, H Nejat, 1990. " Relative Price Variability, Real Shocks, and the Stock Market," Journal of Finance, American Finance Association, vol. 45(2), pages 479-96, June.
- Jones, Charles M & Kaul, Gautam, 1996. " Oil and the Stock Markets," Journal of Finance, American Finance Association, vol. 51(2), pages 463-91, June.
- Mork, Knut Anton, 1989. "Oil and Macroeconomy When Prices Go Up and Down: An Extension of Hamilton's Results," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 740-44, June.
- Faff, Robert W. & Brailsford, Timothy J., 1999. "Oil price risk and the Australian stock market," Journal of Energy Finance & Development, Elsevier, vol. 4(1), pages 69-87, 06.
- Kilian, Lutz & Park, Cheolbeom, 2007.
"The Impact of Oil Price Shocks on the U.S. Stock Market,"
CEPR Discussion Papers
6166, C.E.P.R. Discussion Papers.
- Lutz Kilian & Cheolbeom Park, 2009. "The Impact Of Oil Price Shocks On The U.S. Stock Market," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(4), pages 1267-1287, November.
- Pedroni, Peter, 1999.
" Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors,"
Oxford Bulletin of Economics and Statistics,
Department of Economics, University of Oxford, vol. 61(0), pages 653-70, Special I.
- Peter Pedroni, 1999. "Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Department of Economics Working Papers 2000-02, Department of Economics, Williams College.
- Sadorsky, Perry, 1999. "Oil price shocks and stock market activity," Energy Economics, Elsevier, vol. 21(5), pages 449-469, October.
- Hooker, Mark A, 2002. "Are Oil Shocks Inflationary? Asymmetric and Nonlinear Specifications versus Changes in Regime," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(2), pages 540-61, May.
- Nandha, Mohan & Faff, Robert, 2008. "Does oil move equity prices? A global view," Energy Economics, Elsevier, vol. 30(3), pages 986-997, May.
- Chen, Nai-Fu & Roll, Richard & Ross, Stephen A, 1986. "Economic Forces and the Stock Market," The Journal of Business, University of Chicago Press, vol. 59(3), pages 383-403, July.
- Driesprong, G. & Jacobsen, B. & Maat, B., 2003. "Striking Oil: Another Puzzle," ERIM Report Series Research in Management ERS-2003-082-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
- Park, Jungwook & Ratti, Ronald A., 2008. "Oil price shocks and stock markets in the U.S. and 13 European countries," Energy Economics, Elsevier, vol. 30(5), pages 2587-2608, September.
- Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
- Gisser, Micha & Goodwin, Thomas H, 1986. "Crude Oil and the Macroeconomy: Tests of Some Popular Notions: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(1), pages 95-103, February.
- El-Sharif, Idris & Brown, Dick & Burton, Bruce & Nixon, Bill & Russell, Alex, 2005. "Evidence on the nature and extent of the relationship between oil prices and equity values in the UK," Energy Economics, Elsevier, vol. 27(6), pages 819-830, November.
- Papapetrou, Evangelia, 2001. "Oil price shocks, stock market, economic activity and employment in Greece," Energy Economics, Elsevier, vol. 23(5), pages 511-532, September.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bill Robinson).
If references are entirely missing, you can add them using this form.