Advanced Search
MyIDEAS: Login to save this paper or follow this series

Oil Price Shocks and Volatility in Australian Stock Returns ‎

Contents:

Author Info

  • Ratti, Ronald A.
  • Hasan, M. Zahid

Abstract

This paper examines the effect of oil shocks on return and volatility in the sectors of ‎Australian stock market and finds significant effects for most sectors. For the overall market ‎index, an increase in oil price return significantly reduces return, and an increase in oil price ‎return volatility significantly reduces volatility. An advantage of looking at sector returns ‎rather than a general index of stock returns is that sectors may well differ markedly in how ‎they respond to oil price shocks. The energy and material sectors (as expected) and the ‎financial sector (surprisingly) are out of step (in different ways) with results for the other ‎sectors and for the overall index. A rise in oil price increases returns in the energy and material ‎sectors and an increase in oil price return volatility increases stock return volatility in the ‎financial sector. Explanation for the negative (positive) association between oil return (oil ‎return volatility) and returns (volatility of returns) in the financial sector must be based on the ‎association via lending to and/or holdings of corporate bonds issued by firms with significant ‎exposure to oil price fluctuations and their speculative positions in oil related instruments. ‎

Download Info

If 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.
File URL: http://mpra.ub.uni-muenchen.de/49043/
File Function: original version
Download Restriction: no

Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 49043.

as in new window
Length:
Date of creation: 01 Jan 2013
Date of revision:
Handle: RePEc:pra:mprapa:49043

Contact details of provider:
Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC

Related research

Keywords: oil price shocks; volatility in stock returns; Australian sector returns;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Hammoudeh, Shawkat M. & Yuan, Yuan & McAleer, Michael & Thompson, Mark A., 2010. "Precious metals-exchange rate volatility transmissions and hedging strategies," International Review of Economics & Finance, Elsevier, Elsevier, vol. 19(4), pages 633-647, October.
  2. Mohammadi, Hassan & Su, Lixian, 2010. "International evidence on crude oil price dynamics: Applications of ARIMA-GARCH models," Energy Economics, Elsevier, Elsevier, vol. 32(5), pages 1001-1008, September.
  3. Park, Jungwook & Ratti, Ronald A., 2008. "Oil price shocks and stock markets in the U.S. and 13 European countries," Energy Economics, Elsevier, Elsevier, vol. 30(5), pages 2587-2608, September.
  4. Hilde C. Bjørnland, 2009. "Oil Price Shocks And Stock Market Booms In An Oil Exporting Country," Scottish Journal of Political Economy, Scottish Economic Society, vol. 56(2), pages 232-254, 05.
  5. Ratti, Ronald A. & Seol, Youn & Yoon, Kyung Hwan, 2011. "Relative energy price and investment by European firms," Energy Economics, Elsevier, Elsevier, vol. 33(5), pages 721-731, September.
  6. Rebeca Jimenez-Rodriguez & Marcelo Sanchez, 2005. "Oil price shocks and real GDP growth: empirical evidence for some OECD countries," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 37(2), pages 201-228.
  7. Ben S. Bernanke, 1980. "Irreversibility, Uncertainty, and Cyclical Investment," NBER Working Papers 0502, National Bureau of Economic Research, Inc.
  8. Sébastien Laurent & Luc Bauwens & Jeroen V. K. Rombouts, 2006. "Multivariate GARCH models: a survey," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 21(1), pages 79-109.
  9. Marc Gronwald, 2008. "Large Oil Shocks and the US Economy: Infrequent Incidents with Large Effects," The Energy Journal, International Association for Energy Economics, International Association for Energy Economics, vol. 0(Number 1), pages 151-172.
  10. Hooker, Mark A., 1996. "What happened to the oil price-macroeconomy relationship?," Journal of Monetary Economics, Elsevier, Elsevier, vol. 38(2), pages 195-213, October.
  11. Sadorsky, Perry, 2012. "Correlations and volatility spillovers between oil prices and the stock prices of clean energy and technology companies," Energy Economics, Elsevier, Elsevier, vol. 34(1), pages 248-255.
  12. Boyer, M. Martin & Filion, Didier, 2007. "Common and fundamental factors in stock returns of Canadian oil and gas companies," Energy Economics, Elsevier, Elsevier, vol. 29(3), pages 428-453, May.
  13. Perron, P. & Bai, J., 1995. "Estimating and Testing Linear Models with Multiple Structural Changes," Cahiers de recherche, Centre interuniversitaire de recherche en économie quantitative, CIREQ 9552, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  14. Kiseok Lee & Shawn Ni & Ronald A. Ratti, 1995. "Oil Shocks and the Macroeconomy: The Role of Price Variability," The Energy Journal, International Association for Energy Economics, International Association for Energy Economics, vol. 0(Number 4), pages 39-56.
  15. Mohan Nandha & Robert Brooks, 2009. "Oil prices and transport sector returns: an international analysis," Review of Quantitative Finance and Accounting, Springer, Springer, vol. 33(4), pages 393-409, November.
  16. Lastrapes, William D, 1989. "Exchange Rate Volatility and U.S. Monetary Policy: An ARCH Application," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 21(1), pages 66-77, February.
  17. Hamilton, James D., 1996. "This is what happened to the oil price-macroeconomy relationship," Journal of Monetary Economics, Elsevier, Elsevier, vol. 38(2), pages 215-220, October.
  18. Kilian, Lutz, 2006. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5994, C.E.P.R. Discussion Papers.
  19. Yoon, Kyung Hwan & Ratti, Ronald A., 2011. "Energy price uncertainty, energy intensity and firm investment," Energy Economics, Elsevier, Elsevier, vol. 33(1), pages 67-78, January.
  20. Mohamed El Hedi Arouri & Amine Lahiani & Khuong Nguyen Duc, 2010. "Forecasting the conditional volatility of oil spot and futures prices with structural breaks and long memory models," Working Papers 13, Development and Policies Research Center (DEPOCEN), Vietnam.
  21. Papapetrou, Evangelia, 2001. "Oil price shocks, stock market, economic activity and employment in Greece," Energy Economics, Elsevier, Elsevier, vol. 23(5), pages 511-532, September.
  22. 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, University of Chicago Press, vol. 97(3), pages 740-44, June.
  23. Hong, Harrison & Torous, Walter & Valkanov, Rossen, 2007. "Do industries lead stock markets?," Journal of Financial Economics, Elsevier, Elsevier, vol. 83(2), pages 367-396, February.
  24. Driesprong, Gerben & Jacobsen, Ben & Maat, Benjamin, 2008. "Striking oil: Another puzzle?," Journal of Financial Economics, Elsevier, Elsevier, vol. 89(2), pages 307-327, August.
  25. Sadorsky, Perry, 1999. "Oil price shocks and stock market activity," Energy Economics, Elsevier, Elsevier, vol. 21(5), pages 449-469, October.
  26. Nandha, Mohan & Faff, Robert, 2008. "Does oil move equity prices? A global view," Energy Economics, Elsevier, Elsevier, vol. 30(3), pages 986-997, May.
  27. Sadorsky, Perry, 2001. "Risk factors in stock returns of Canadian oil and gas companies," Energy Economics, Elsevier, Elsevier, vol. 23(1), pages 17-28, January.
  28. Arouri, Mohamed El Hedi, 2011. "Does crude oil move stock markets in Europe? A sector investigation," Economic Modelling, Elsevier, Elsevier, vol. 28(4), pages 1716-1725, July.
  29. Kilian, Lutz & Park, Cheolbeom, 2007. "The Impact of Oil Price Shocks on the U.S. Stock Market," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6166, C.E.P.R. Discussion Papers.
  30. Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, Elsevier, vol. 52(1-2), pages 5-59.
  31. Sadorsky, Perry, 2006. "Modeling and forecasting petroleum futures volatility," Energy Economics, Elsevier, Elsevier, vol. 28(4), pages 467-488, July.
  32. Engle, Robert F & Lilien, David M & Robins, Russell P, 1987. "Estimating Time Varying Risk Premia in the Term Structure: The Arch-M Model," Econometrica, Econometric Society, Econometric Society, vol. 55(2), pages 391-407, March.
  33. Colin T. Bowers & Chris Heaton, 2013. "What does high-dimensional factor analysis tell us about risk factors in the Australian stock market?," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 45(11), pages 1395-1404, April.
  34. Sunil K. Mohanty & Mohan Nandha, 2011. "Oil Risk Exposure: The Case of the U.S. Oil and Gas Sector," The Financial Review, Eastern Finance Association, Eastern Finance Association, vol. 46(1), pages 165-191, 02.
  35. Narayan, Paresh Kumar & Narayan, Seema, 2007. "Modelling oil price volatility," Energy Policy, Elsevier, Elsevier, vol. 35(12), pages 6549-6553, December.
  36. Elyasiani, Elyas & Mansur, Iqbal & Odusami, Babatunde, 2011. "Oil price shocks and industry stock returns," Energy Economics, Elsevier, Elsevier, vol. 33(5), pages 966-974, September.
  37. James D. Hamilton, 2000. "What is an Oil Shock?," NBER Working Papers 7755, National Bureau of Economic Research, Inc.
  38. Choi, Kyongwook & Hammoudeh, Shawkat, 2010. "Volatility behavior of oil, industrial commodity and stock markets in a regime-switching environment," Energy Policy, Elsevier, Elsevier, vol. 38(8), pages 4388-4399, August.
  39. Kilian, Lutz, 2007. "The Economic Effects of Energy Price Shocks," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6559, C.E.P.R. Discussion Papers.
  40. Faff, Robert W. & Brailsford, Timothy J., 1999. "Oil price risk and the Australian stock market," Journal of Energy Finance & Development, Elsevier, Elsevier, vol. 4(1), pages 69-87, 06.
  41. Kang, Sang Hoon & Kang, Sang-Mok & Yoon, Seong-Min, 2009. "Forecasting volatility of crude oil markets," Energy Economics, Elsevier, Elsevier, vol. 31(1), pages 119-125, January.
  42. 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, Elsevier, vol. 36(9), pages 3544-3553, September.
  43. Jones, Charles M & Kaul, Gautam, 1996. " Oil and the Stock Markets," Journal of Finance, American Finance Association, American Finance Association, vol. 51(2), pages 463-91, June.
  44. Sadorsky, Perry, 2003. "The macroeconomic determinants of technology stock price volatility," Review of Financial Economics, Elsevier, Elsevier, vol. 12(2), pages 191-205.
  45. K. Chaudhuri & S. Smiles, 2004. "Stock market and aggregate economic activity: evidence from Australia," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 14(2), pages 121-129.
  46. Ewing, Bradley T. & Thompson, Mark A., 2007. "Dynamic cyclical comovements of oil prices with industrial production, consumer prices, unemployment, and stock prices," Energy Policy, Elsevier, Elsevier, vol. 35(11), pages 5535-5540, November.
  47. Sofía B. Ramos & Helena Veiga, 2009. "Risk factors in oil and gas industry returns: international evidence," Statistics and Econometrics Working Papers, Universidad Carlos III, Departamento de Estadística y Econometría ws096920, Universidad Carlos III, Departamento de Estadística y Econometría.
  48. Dayanandan, Ajit & Donker, Han, 2011. "Oil prices and accounting profits of oil and gas companies," International Review of Financial Analysis, Elsevier, Elsevier, vol. 20(5), pages 252-257.
  49. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(2), pages 228-48, April.
  50. Bollerslev, Tim, 1987. "A Conditionally Heteroskedastic Time Series Model for Speculative Prices and Rates of Return," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 542-47, August.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:49043. See general 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: (Ekkehart Schlicht).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.