IDEAS home Printed from https://ideas.repec.org/a/aen/journl/ej41-5-nguyen.html
   My bibliography  Save this article

Oil Price Declines Could Hurt U.S. Financial Markets: The Role of Oil Price Level

Author

Listed:
  • Ha Nguyen, Huong Nguyen, and Anh Pham

Abstract

This paper investigates the causal effects of oil price fluctuations on United Statesý financial markets using daily oil price and financial market data from 2011 to 2016. To address endogeneity, we follow the heteroscedasticity-based identification strategy by Rigobon (2003) and instrument for changes in oil prices with exogenous shocks on current and future oil supply. We find that a decline in oil price negatively affected markets after 2014 when oil price was very low, but not before 2014 when the price was relatively high. These novel findings suggest oil price level could affect the impact of a decrease in oil prices on financial markets.

Suggested Citation

  • Ha Nguyen, Huong Nguyen, and Anh Pham, 2020. "Oil Price Declines Could Hurt U.S. Financial Markets: The Role of Oil Price Level," The Energy Journal, International Association for Energy Economics, vol. 0(Number 5), pages 1-22.
    • Handle: RePEc:aen:journl:ej41-5-nguyen
    as

    Download full text from publisher

    File URL: http://www.iaee.org/en/publications/ejarticle.aspx?id=3550
    Download Restriction: Access to full text is restricted to IAEE members and subscribers.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Bataa, Erdenebat & Park, Cheolbeom, 2017. "Is the recent low oil price attributable to the shale revolution?," Energy Economics, Elsevier, vol. 67(C), pages 72-82.
    2. Lutz Kilian & Robert J. Vigfusson, 2011. "Are the responses of the U.S. economy asymmetric in energy price increases and decreases?," Quantitative Economics, Econometric Society, vol. 2(3), pages 419-453, November.
    3. 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.
    4. Sam Schulhofer-Wohl & Miguel Garrido, 2013. "Do Newspapers Matter? Short-Run and Long-Run Evidence From the Closure of The Cincinnati Post," Journal of Media Economics, Taylor & Francis Journals, vol. 26(2), pages 60-81, June.
    5. 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.
    6. Hamilton, James D., 2003. "What is an oil shock?," Journal of Econometrics, Elsevier, vol. 113(2), pages 363-398, April.
    7. Driesprong, Gerben & Jacobsen, Ben & Maat, Benjamin, 2008. "Striking oil: Another puzzle?," Journal of Financial Economics, Elsevier, vol. 89(2), pages 307-327, August.
    8. Apergis, Nicholas & Miller, Stephen M., 2009. "Do structural oil-market shocks affect stock prices?," Energy Economics, Elsevier, vol. 31(4), pages 569-575, July.
    9. Hammoudeh, Shawkat & Dibooglu, Sel & Aleisa, Eisa, 2004. "Relationships among U.S. oil prices and oil industry equity indices," International Review of Economics & Finance, Elsevier, vol. 13(4), pages 427-453.
    10. Abhay Abhyankar, Bing Xu, and Jiayue Wang, 2013. "Oil Price Shocks and the Stock Market: Evidence from Japan," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    11. Javier F. Mory, 1993. "Oil Prices and Economic Activity: Is the Relationship Symmetric?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 151-162.
    12. Alain P. Chaboud & Benjamin Chiquoine & Erik Hjalmarsson & Clara Vega, 2014. "Rise of the Machines: Algorithmic Trading in the Foreign Exchange Market," Journal of Finance, American Finance Association, vol. 69(5), pages 2045-2084, October.
    13. Zeina Alsalman Ana María Herrera, 2015. "Oil Price Shocks and the U.S. Stock Market: Do Sign and Size Matter?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    14. Lutz Kilian & Daniel P. Murphy, 2014. "The Role Of Inventories And Speculative Trading In The Global Market For Crude Oil," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 29(3), pages 454-478, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Semei Coronado & Rangan Gupta & Saban Nazlioglu & Omar Rojas, 2023. "Time‐varying causality between bond and oil markets of the United States: Evidence from over one and half centuries of data," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 2239-2247, July.
    2. Zhang, Tianding & Zeng, Song, 2023. "Dynamic comovement and extreme risk spillovers between international crude oil and China's non-ferrous metal futures market," Resources Policy, Elsevier, vol. 80(C).
    3. Yanhong Feng & Xiaolei Wang & Shuanglian Chen & Yanqiong Liu, 2022. "Impact of Oil Financialization on Oil Price Fluctuation: A Perspective of Heterogeneity," Energies, MDPI, vol. 15(12), pages 1-20, June.
    4. Rangan Gupta & Syed Jawad Hussain Shahzad & Xin Sheng & Sowmya Subramaniam, 2023. "The role of oil and risk shocks in the high‐frequency movements of the term structure of interest rates: Evidence from the U.S. Treasury market," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 1845-1857, April.
    5. Manthos D. Delis & Kathrin de Greiff & Maria Iosifidi & Steven Ongena, 2024. "Being stranded with fossil fuel reserves? Climate policy risk and the pricing of bank loans," Financial Markets, Institutions & Instruments, John Wiley & Sons, vol. 33(3), pages 239-265, August.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Stavros Degiannakis, George Filis, and Vipin Arora, 2018. "Oil Prices and Stock Markets: A Review of the Theory and Empirical Evidence," The Energy Journal, International Association for Energy Economics, vol. 0(Number 5).
    2. Lang, Korbinian & Auer, Benjamin R., 2020. "The economic and financial properties of crude oil: A review," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).
    3. Basher, Syed Abul & Haug, Alfred A. & Sadorsky, Perry, 2018. "The impact of oil-market shocks on stock returns in major oil-exporting countries," Journal of International Money and Finance, Elsevier, vol. 86(C), pages 264-280.
    4. Smyth, Russell & Narayan, Paresh Kumar, 2018. "What do we know about oil prices and stock returns?," International Review of Financial Analysis, Elsevier, vol. 57(C), pages 148-156.
    5. Chen, Hongtao & Liu, Li & Wang, Yudong & Zhu, Yingming, 2016. "Oil price shocks and U.S. dollar exchange rates," Energy, Elsevier, vol. 112(C), pages 1036-1048.
    6. Herrera, Ana María & Karaki, Mohamad B. & Rangaraju, Sandeep Kumar, 2019. "Oil price shocks and U.S. economic activity," Energy Policy, Elsevier, vol. 129(C), pages 89-99.
    7. Broadstock, David C. & Filis, George, 2014. "Oil price shocks and stock market returns: New evidence from the United States and China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 33(C), pages 417-433.
    8. Bachmeier, Lance J. & Nadimi, Soheil R., 2018. "Oil shocks and stock return volatility," The Quarterly Review of Economics and Finance, Elsevier, vol. 68(C), pages 1-9.
    9. Basher, Syed Abul & Haug, Alfred A. & Sadorsky, Perry, 2017. "The impact of oil-market shocks on stock returns in major oil-exporting countries: A Markov-switching approach," MPRA Paper 81638, University Library of Munich, Germany.
    10. Naser, Hanan & Ahmed, Abdul Rashid, 2016. "Oil Price Shocks and Stock Market Performance in Emerging Economies: Some Evidence using FAVAR Models," MPRA Paper 77868, University Library of Munich, Germany.
    11. Xiao, Jihong & Zhou, Min & Wen, Fengming & Wen, Fenghua, 2018. "Asymmetric impacts of oil price uncertainty on Chinese stock returns under different market conditions: Evidence from oil volatility index," Energy Economics, Elsevier, vol. 74(C), pages 777-786.
    12. Babak Fazelabdolabadi, 2019. "Uncertainty and energy-sector equity returns in Iran: a Bayesian and quasi-Monte Carlo time-varying analysis," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 5(1), pages 1-20, December.
    13. Mohamed Albaity & Hasan Mustafa, 2018. "International and Macroeconomic Determinants of Oil Price: Evidence from Gulf Cooperation Council Countries," International Journal of Energy Economics and Policy, Econjournals, vol. 8(1), pages 69-81.
    14. Zolfaghari, Mehdi & Ghoddusi, Hamed & Faghihian, Fatemeh, 2020. "Volatility spillovers for energy prices: A diagonal BEKK approach," Energy Economics, Elsevier, vol. 92(C).
    15. Shiu-Sheng Chen, 2014. "Forecasting Crude Oil Price Movements With Oil-Sensitive Stocks," Economic Inquiry, Western Economic Association International, vol. 52(2), pages 830-844, April.
    16. Pal, Debdatta & Mitra, Subrata K., 2019. "Oil price and automobile stock return co-movement: A wavelet coherence analysis," Economic Modelling, Elsevier, vol. 76(C), pages 172-181.
    17. Reboredo, Juan C. & Rivera-Castro, Miguel A., 2014. "Wavelet-based evidence of the impact of oil prices on stock returns," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 145-176.
    18. Fatema Alaali, 2017. "Analysing the Effect of Oil Price Shocks on Asset Prices: Evidence from UK Firms," International Journal of Economics and Financial Issues, Econjournals, vol. 7(4), pages 418-432.
    19. Silky Vigg Kushwah & Areej Aftab Siddiqui, 2023. "Relationship Between Oil Price Movements and Stock Returns of Oil Firms in Oil Importing Economies," Global Business Review, International Management Institute, vol. 24(5), pages 916-932, October.
    20. Alaali, Fatema, 2017. "Analysing the Effect of Oil Price Shocks on Asset Prices: evidence from UK firms," MPRA Paper 78013, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • F0 - International Economics - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aen:journl:ej41-5-nguyen. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: David Williams (email available below). General contact details of provider: https://edirc.repec.org/data/iaeeeea.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.