IDEAS home Printed from https://ideas.repec.org/a/eee/eneeco/v72y2018icp331-340.html
   My bibliography  Save this article

Oil prices and news-based uncertainty: Novel evidence

Author

Listed:
  • Su, Zhi
  • Lu, Man
  • Yin, Libo

Abstract

In this paper, using news implied volatility (NVIX) as a key variable to measure news-based uncertainty, we investigate whether the world price of oil and three classical oil shocks affect news-based uncertainty, or vice versa. Our analysis is conducted through the news mechanism that is unrelated to fundamentals. This research contributes to the literature on the effect of oil prices on news-based uncertainty by studying the dynamics, in both the time and frequency domains, using the wavelet coherence analysis. Our results illustrate that oil prices exhibit a statistically and economically significant leading role on NVIX, especially in the long run. Further, we distinguish the different impacts of oil shocks and find that the oil supply and aggregate demand shocks usually play a leading role on relatively long-term NVIX while the oil specific demand shocks are sensitive to the fluctuations of NVIX. We also find that the rules of comovement between oil prices (oil shocks) and news-based uncertainty change at different frequencies and times. They usually move together in opposite directions with the exception of the oil supply shocks and NVIX. These findings apply to both oil spot and futures markets. Our results present new and interesting implications for investors and policy makers by supporting the news reallocation channel as an important transmission mechanism from oil markets.

Suggested Citation

  • Su, Zhi & Lu, Man & Yin, Libo, 2018. "Oil prices and news-based uncertainty: Novel evidence," Energy Economics, Elsevier, vol. 72(C), pages 331-340.
  • Handle: RePEc:eee:eneeco:v:72:y:2018:i:c:p:331-340
    DOI: 10.1016/j.eneco.2018.04.021
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0140988318301464
    Download Restriction: Full text for ScienceDirect subscribers only

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

    References listed on IDEAS

    as
    1. Joëts, Marc & Mignon, Valérie & Razafindrabe, Tovonony, 2017. "Does the volatility of commodity prices reflect macroeconomic uncertainty?," Energy Economics, Elsevier, vol. 68(C), pages 313-326.
    2. Cai, Xiao Jing & Tian, Shuairu & Yuan, Nannan & Hamori, Shigeyuki, 2017. "Interdependence between oil and East Asian stock markets: Evidence from wavelet coherence analysis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 48(C), pages 206-223.
    3. Hamilton, James D., 1996. "This is what happened to the oil price-macroeconomy relationship," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 215-220, October.
    4. Ing-Haw Cheng & Wei Xiong, 2014. "Financialization of Commodity Markets," Annual Review of Financial Economics, Annual Reviews, vol. 6(1), pages 419-441, December.
    5. Boyer, M. Martin & Filion, Didier, 2007. "Common and fundamental factors in stock returns of Canadian oil and gas companies," Energy Economics, Elsevier, vol. 29(3), pages 428-453, May.
    6. Alquist, Ron & Kilian, Lutz & Vigfusson, Robert J., 2013. "Forecasting the Price of Oil," Handbook of Economic Forecasting, in: G. Elliott & C. Granger & A. Timmermann (ed.), Handbook of Economic Forecasting, edition 1, volume 2, chapter 0, pages 427-507, Elsevier.
    7. Vacha, Lukas & Barunik, Jozef, 2012. "Co-movement of energy commodities revisited: Evidence from wavelet coherence analysis," Energy Economics, Elsevier, vol. 34(1), pages 241-247.
    8. Reboredo, Juan C. & Rivera-Castro, Miguel A. & Ugolini, Andrea, 2017. "Wavelet-based test of co-movement and causality between oil and renewable energy stock prices," Energy Economics, Elsevier, vol. 61(C), pages 241-252.
    9. Zhi Da & Joseph Engelberg & Pengjie Gao, 2015. "Editor's Choice The Sum of All FEARS Investor Sentiment and Asset Prices," Review of Financial Studies, Society for Financial Studies, vol. 28(1), pages 1-32.
    10. Li, Lei & Yin, Libo & Zhou, Yimin, 2016. "Exogenous shocks and the spillover effects between uncertainty and oil price," Energy Economics, Elsevier, vol. 54(C), pages 224-234.
    11. Feng, Jiabao & Wang, Yudong & Yin, Libo, 2017. "Oil volatility risk and stock market volatility predictability: Evidence from G7 countries," Energy Economics, Elsevier, vol. 68(C), pages 240-254.
    12. Ryan Kellogg, 2014. "The Effect of Uncertainty on Investment: Evidence from Texas Oil Drilling," American Economic Review, American Economic Association, vol. 104(6), pages 1698-1734, June.
    13. Pan, Zhiyuan & Wang, Yudong & Wu, Chongfeng & Yin, Libo, 2017. "Oil price volatility and macroeconomic fundamentals: A regime switching GARCH-MIDAS model," Journal of Empirical Finance, Elsevier, vol. 43(C), pages 130-142.
    14. 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.
    15. Kang, Wensheng & Ratti, Ronald A. & Vespignani, Joaquin L., 2017. "Oil price shocks and policy uncertainty: New evidence on the effects of US and non-US oil production," Energy Economics, Elsevier, vol. 66(C), pages 536-546.
    16. Don Bredin & John Elder & Stilianos Fountas, 2011. "Oil volatility and the option value of waiting: An analysis of the G‐7," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 31(7), pages 679-702, July.
    17. Eric M. Leeper & Christopher A. Sims & Tao Zha, 1996. "What Does Monetary Policy Do?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(2), pages 1-78.
    18. 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 1053-1069, June.
    19. Ben S. Bernanke, 1983. "Irreversibility, Uncertainty, and Cyclical Investment," The Quarterly Journal of Economics, Oxford University Press, vol. 98(1), pages 85-106.
    20. Vo, Minh, 2011. "Oil and stock market volatility: A multivariate stochastic volatility perspective," Energy Economics, Elsevier, vol. 33(5), pages 956-965, September.
    21. Jegadeesh, Narasimhan & Wu, Di, 2013. "Word power: A new approach for content analysis," Journal of Financial Economics, Elsevier, vol. 110(3), pages 712-729.
    22. Manela, Asaf & Moreira, Alan, 2017. "News implied volatility and disaster concerns," Journal of Financial Economics, Elsevier, vol. 123(1), pages 137-162.
    23. Jones, Charles M & Kaul, Gautam, 1996. "Oil and the Stock Markets," Journal of Finance, American Finance Association, vol. 51(2), pages 463-491, June.
    24. Nitish Ranjan Sinha, 2016. "Underreaction to News in the US Stock Market," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 6(02), pages 1-46, June.
    25. Narayan, Paresh Kumar & Sharma, Susan Sunila, 2011. "New evidence on oil price and firm returns," Journal of Banking & Finance, Elsevier, vol. 35(12), pages 3253-3262.
    26. Henry, Claude, 1974. "Investment Decisions Under Uncertainty: The "Irreversibility Effect."," American Economic Review, American Economic Association, vol. 64(6), pages 1006-1012, December.
    27. Paul C. Tetlock & Maytal Saar‐Tsechansky & Sofus Macskassy, 2008. "More Than Words: Quantifying Language to Measure Firms' Fundamentals," Journal of Finance, American Finance Association, vol. 63(3), pages 1437-1467, June.
    28. Cummins, Mark & Dowling, Michael & Kearney, Fearghal, 2016. "Oil market modelling: A comparative analysis of fundamental and latent factor approaches," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 211-218.
    29. Niederhoffer, Victor, 1971. "The Analysis of World Events and Stock Prices," The Journal of Business, University of Chicago Press, vol. 44(2), pages 193-219, April.
    30. Awartani, Basel & Maghyereh, Aktham Issa, 2013. "Dynamic spillovers between oil and stock markets in the Gulf Cooperation Council Countries," Energy Economics, Elsevier, vol. 36(C), pages 28-42.
    31. Roueff, Francois & von Sachs, Rainer, 2011. "Locally stationary long memory estimation," LIDAM Reprints ISBA 2011009, Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA).
    32. Brennan, Michael J & Schwartz, Eduardo S, 1985. "Evaluating Natural Resource Investments," The Journal of Business, University of Chicago Press, vol. 58(2), pages 135-157, April.
    33. Bams, Dennis & Blanchard, Gildas & Honarvar, Iman & Lehnert, Thorsten, 2017. "Does oil and gold price uncertainty matter for the stock market?," Journal of Empirical Finance, Elsevier, vol. 44(C), pages 270-285.
    34. Robert S. Pindyck, 2004. "Volatility and commodity price dynamics," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 24(11), pages 1029-1047, November.
    35. Aloui, Riadh & Gupta, Rangan & Miller, Stephen M., 2016. "Uncertainty and crude oil returns," Energy Economics, Elsevier, vol. 55(C), pages 92-100.
    36. Paul C. Tetlock, 2007. "Giving Content to Investor Sentiment: The Role of Media in the Stock Market," Journal of Finance, American Finance Association, vol. 62(3), pages 1139-1168, June.
    37. Panopoulou, Ekaterini & Pantelidis, Theologos, 2015. "Speculative behaviour and oil price predictability," Economic Modelling, Elsevier, vol. 47(C), pages 128-136.
    38. He, Ling-Yun & Fan, Ying & Wei, Yi-Ming, 2009. "Impact of speculator's expectations of returns and time scales of investment on crude oil price behaviors," Energy Economics, Elsevier, vol. 31(1), pages 77-84, January.
    39. Wang, Yudong & Wei, Yu & Wu, Chongfeng & Yin, Libo, 2018. "Oil and the short-term predictability of stock return volatility," Journal of Empirical Finance, Elsevier, vol. 47(C), pages 90-104.
    40. Lily Fang & Joel Peress, 2009. "Media Coverage and the Cross‐section of Stock Returns," Journal of Finance, American Finance Association, vol. 64(5), pages 2023-2052, October.
    41. Yang, Lu & Cai, Xiao Jing & Hamori, Shigeyuki, 2017. "Does the crude oil price influence the exchange rates of oil-importing and oil-exporting countries differently? A wavelet coherence analysis," International Review of Economics & Finance, Elsevier, vol. 49(C), pages 536-547.
    42. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-248, April.
    43. Salisu, Afees A. & Oloko, Tirimisiyu F., 2015. "Modeling oil price–US stock nexus: A VARMA–BEKK–AGARCH approach," Energy Economics, Elsevier, vol. 50(C), pages 1-12.
    44. Boubaker, Heni & Raza, Syed Ali, 2017. "A wavelet analysis of mean and volatility spillovers between oil and BRICS stock markets," Energy Economics, Elsevier, vol. 64(C), pages 105-117.
    45. Jacob Boudoukh & Ronen Feldman & Shimon Kogan & Matthew Richardson, 2013. "Which News Moves Stock Prices? A Textual Analysis," NBER Working Papers 18725, National Bureau of Economic Research, Inc.
    46. Rebeca Jimenez-Rodriguez & Marcelo Sanchez, 2005. "Oil price shocks and real GDP growth: empirical evidence for some OECD countries," Applied Economics, Taylor & Francis Journals, vol. 37(2), pages 201-228.
    47. Roueff, François & von Sachs, Rainer, 2011. "Locally stationary long memory estimation," Stochastic Processes and their Applications, Elsevier, vol. 121(4), pages 813-844, April.
    48. Casey Dougal & Joseph Engelberg & Diego García & Christopher A. Parsons, 2012. "Journalists and the Stock Market," Review of Financial Studies, Society for Financial Studies, vol. 25(3), pages 639-679.
    49. Tim Loughran & Bill Mcdonald, 2011. "When Is a Liability Not a Liability? Textual Analysis, Dictionaries, and 10‐Ks," Journal of Finance, American Finance Association, vol. 66(1), pages 35-65, February.
    50. Libo Yin, 2016. "Does oil price respond to macroeconomic uncertainty? New evidence," Empirical Economics, Springer, vol. 51(3), pages 921-938, November.
    51. Ju, Keyi & Su, Bin & Zhou, Dequn & Wu, Junmin & Liu, Lifan, 2016. "Macroeconomic performance of oil price shocks: Outlier evidence from nineteen major oil-related countries/regions," Energy Economics, Elsevier, vol. 60(C), pages 325-332.
    52. Hailiang Chen & Prabuddha De & Yu (Jeffrey) Hu & Byoung-Hyoun Hwang, 2014. "Wisdom of Crowds: The Value of Stock Opinions Transmitted Through Social Media," Review of Financial Studies, Society for Financial Studies, vol. 27(5), pages 1367-1403.
    53. Conrad, Christian & Loch, Karin & Rittler, Daniel, 2014. "On the macroeconomic determinants of long-term volatilities and correlations in U.S. stock and crude oil markets," Journal of Empirical Finance, Elsevier, vol. 29(C), pages 26-40.
    54. Khalfaoui, R. & Boutahar, M. & Boubaker, H., 2015. "Analyzing volatility spillovers and hedging between oil and stock markets: Evidence from wavelet analysis," Energy Economics, Elsevier, vol. 49(C), pages 540-549.
    55. Antonakakis, Nikolaos & Chatziantoniou, Ioannis & Filis, George, 2014. "Dynamic spillovers of oil price shocks and economic policy uncertainty," Energy Economics, Elsevier, vol. 44(C), pages 433-447.
    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. Sheng, Xin & Gupta, Rangan & Ji, Qiang, 2020. "The impacts of structural oil shocks on macroeconomic uncertainty: Evidence from a large panel of 45 countries," Energy Economics, Elsevier, vol. 91(C).
    2. Huang, Jianbai & Li, Yingli & Zhang, Hongwei & Chen, Jinyu, 2021. "The effects of uncertainty measures on commodity prices from a time-varying perspective," International Review of Economics & Finance, Elsevier, vol. 71(C), pages 100-114.
    3. Yang, Lu, 2019. "Connectedness of economic policy uncertainty and oil price shocks in a time domain perspective," Energy Economics, Elsevier, vol. 80(C), pages 219-233.
    4. Fateh Belaid & Ahmed H. Elsayed, 2019. "What drives renewable energy production in MENA Region? Investigating the roles of political stability, governance and financial sector," Working Papers 1322, Economic Research Forum, revised 21 Aug 2019.
    5. Chen, Xian & Li, Yang & Xiao, Jihong & Wen, Fenghua, 2020. "Oil shocks, competition, and corporate investment: Evidence from China," Energy Economics, Elsevier, vol. 89(C).
    6. Yin, Libo & Wang, Yang, 2019. "Forecasting the oil prices: What is the role of skewness risk?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 534(C).

    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. Yang Liu & Liyan Han & Libo Yin, 2018. "Does news uncertainty matter for commodity futures markets? Heterogeneity in energy and non‐energy sectors," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(10), pages 1246-1261, October.
    2. Sun, Xiaolei & Chen, Xiuwen & Wang, Jun & Li, Jianping, 2020. "Multi-scale interactions between economic policy uncertainty and oil prices in time-frequency domains," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    3. 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).
    4. 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).
    5. Wen, Danyan & Wang, Gang-Jin & Ma, Chaoqun & Wang, Yudong, 2019. "Risk spillovers between oil and stock markets: A VAR for VaR analysis," Energy Economics, Elsevier, vol. 80(C), pages 524-535.
    6. Yin, Libo & Feng, Jiabao & Liu, Li & Wang, Yudong, 2019. "It's not that important: The negligible effect of oil market uncertainty," International Review of Economics & Finance, Elsevier, vol. 60(C), pages 62-84.
    7. Ronald A. Ratti & M. Zahid Hasan, 2013. "Oil Price Shocks and Volatility in Australian Stock Returns," The Economic Record, The Economic Society of Australia, vol. 89, pages 67-83, June.
    8. Lee, Chi-Chuan & Lee, Chien-Chiang & Ning, Shao-Lin, 2017. "Dynamic relationship of oil price shocks and country risks," Energy Economics, Elsevier, vol. 66(C), pages 571-581.
    9. Ahmad, Khurshid & Han, JingGuang & Hutson, Elaine & Kearney, Colm & Liu, Sha, 2016. "Media-expressed negative tone and firm-level stock returns," Journal of Corporate Finance, Elsevier, vol. 37(C), pages 152-172.
    10. Wang, Yudong & Wu, Chongfeng & Yang, Li, 2013. "Oil price shocks and stock market activities: Evidence from oil-importing and oil-exporting countries," Journal of Comparative Economics, Elsevier, vol. 41(4), pages 1220-1239.
    11. Degiannakis, Stavros & Filis, George & Panagiotakopoulou, Sofia, 2018. "Oil price shocks and uncertainty: How stable is their relationship over time?," Economic Modelling, Elsevier, vol. 72(C), pages 42-53.
    12. Gupta, Rangan & Kollias, Christos & Papadamou, Stephanos & Wohar, Mark E., 2018. "News implied volatility and the stock-bond nexus: Evidence from historical data for the USA and the UK markets," Journal of Multinational Financial Management, Elsevier, vol. 47, pages 76-90.
    13. 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.
    14. Hassan, Kamrul & Hoque, Ariful & Gasbarro, Dominic, 2019. "Separating BRIC using Islamic stocks and crude oil: dynamic conditional correlation and volatility spillover analysis," Energy Economics, Elsevier, vol. 80(C), pages 950-969.
    15. Czudaj, Robert L., 2019. "Crude oil futures trading and uncertainty," Energy Economics, Elsevier, vol. 80(C), pages 793-811.
    16. Liu, Sha & Han, Jingguang, 2020. "Media tone and expected stock returns," International Review of Financial Analysis, Elsevier, vol. 70(C).
    17. Ratti, Ronald A. & Hasan, M. Zahid, 2013. "Oil Price Shocks and Volatility in Australian Stock Returns ‎," MPRA Paper 49043, University Library of Munich, Germany.
    18. Wu, Kai & Zhu, Jingran & Xu, Mingli & Yang, Lu, 2020. "Can crude oil drive the co-movement in the international stock market? Evidence from partial wavelet coherence analysis," The North American Journal of Economics and Finance, Elsevier, vol. 53(C).
    19. Antonakakis, Nikolaos & Chatziantoniou, Ioannis & Filis, George, 2017. "Oil shocks and stock markets: Dynamic connectedness under the prism of recent geopolitical and economic unrest," International Review of Financial Analysis, Elsevier, vol. 50(C), pages 1-26.
    20. Jaime Casassus & Freddy Higuera, 2011. "Stock Return Predictability and Oil Prices," Documentos de Trabajo 406, Instituto de Economia. Pontificia Universidad Católica de Chile..

    More about this item

    Keywords

    News implied volatility; News-based uncertainty; Oil prices; Oil shocks; Wavelet coherence analysis;
    All these keywords.

    JEL classification:

    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

    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:eee:eneeco:v:72:y:2018:i:c:p:331-340. 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: (Haili He). General contact details of provider: http://www.elsevier.com/locate/eneco .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.