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Energy Shocks and Financial Markets: Nonlinear Linkages

Author

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  • Ciner Cetin

    (Northeastern University)

Abstract

This paper examines the dynamic linkages between oil prices and the stock market. Prior work argues that daily oil futures price changes and the S&P 500 stock index movements are not related. This conclusion could be due to the fact that only linear linkages have been examined. Relying on nonlinear causality tests, this study provides evidence that oil shocks affect stock index returns, which is consistent with the documented influence of oil on economic output. Moreover, the study finds that the linkage between oil prices and the stock market was stronger in the 1990s.

Suggested Citation

  • Ciner Cetin, 2001. "Energy Shocks and Financial Markets: Nonlinear Linkages," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 5(3), pages 1-11, October.
  • Handle: RePEc:bpj:sndecm:v:5:y:2001:i:3:n:3
    DOI: 10.2202/1558-3708.1079
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    References listed on IDEAS

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    1. Campbell, John Y, 1991. "A Variance Decomposition for Stock Returns," Economic Journal, Royal Economic Society, vol. 101(405), pages 157-179, March.
    2. William J. Crowder & Anas Hamed, 1993. "A cointegration test for oil futures market efficiency," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 13(8), pages 933-941, December.
    3. Knut Anton Mork & Oystein Olsen & Hans Terje Mysen, 1994. "Macroeconomic Responses to Oil Price Increases and Decreases in Seven OECD Countries," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 19-36.
    4. Hamilton, James D., 2003. "What is an oil shock?," Journal of Econometrics, Elsevier, vol. 113(2), pages 363-398, April.
    5. Bansal, Ravi & Hsieh, David A & Viswanathan, S, 1993. "A New Approach to International Arbitrage Pricing," Journal of Finance, American Finance Association, vol. 48(5), pages 1719-1747, December.
    6. Geweke, John & Meese, Richard & Dent, Warren, 1983. "Comparing alternative tests of causality in temporal systems : Analytic results and experimental evidence," Journal of Econometrics, Elsevier, vol. 21(2), pages 161-194, February.
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