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Oil news shocks and the U.S. stock market

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  • Alsalman, Zeina
  • Herrera, Ana María
  • Rangaraju, Sandeep Kumar

Abstract

We study the effect of oil news shocks on U.S. aggregate and industry-level stock returns. Using a Proxy-VAR and a sample from January 1973 to December 2019, we find no significant effect on aggregate stock price index on impact, but a persistent and significant drop at longer horizons. An important degree of heterogeneity is found in the industry-level responses: stock returns for precious metals, coal, petroleum and natural gas, and utilities increase significantly and persistently after the shock, whereas consumer goods, rubber and plastic, automobiles, and trucks fall briefly. Moreover, our estimates indicate that oil news shocks pose a risk for IT sectors whose returns exhibit losses. When we extend the sample to December 2022, we uncover a crucial change in the dynamics of the oil surprise measure: it is contaminated by lags of the oil price. We illustrate how using the oil surprise as an instrumental variable in the extended sample produces puzzling responses of industry-level stock returns, whereas a purged measure of the oil surprise leads to more stable estimates.

Suggested Citation

  • Alsalman, Zeina & Herrera, Ana María & Rangaraju, Sandeep Kumar, 2023. "Oil news shocks and the U.S. stock market," Energy Economics, Elsevier, vol. 126(C).
    • Handle: RePEc:eee:eneeco:v:126:y:2023:i:c:s0140988323003894
    DOI: 10.1016/j.eneco.2023.106891
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    2. Ozge Kandemir Kocaaslan & Aysegul Uckun Ozkan, 2026. "The effects of oil news shock on sectoral employment in the USA," Empirical Economics, Springer, vol. 70(3), pages 1-27, March.
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    4. Attílio, Luccas Assis & Mollick, André Varella, 2024. "Assessing the baseline model of WTI oil and stock returns under financial volatility and spillover effects," Energy Economics, Elsevier, vol. 135(C).
    5. Degasperi, Riccardo, 2023. "Identification of Expectational Shocks in the Oil Market using OPEC Announcements," The Warwick Economics Research Paper Series (TWERPS) 1464, University of Warwick, Department of Economics.
    6. Ryan Hanson & Ana María Herrera, 2025. "The Effect of Oil News Shocks on Job Creation and Destruction," Working Papers 25-06, Center for Economic Studies, U.S. Census Bureau.
    7. Mollick, André Varella, 2025. "Risk, uncertainty, world business cycles, and the U.S. stock-oil relationship," Journal of Commodity Markets, Elsevier, vol. 39(C).
    8. Savaş Tarkun, 2025. "The impact of oil supply surprises on maritime transport: a temporal and sectoral analysis," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 161(4), pages 1501-1525, November.

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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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