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Spillovers between the oil sector and the S&P500: The impact of information flow about crude oil

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  • Aromi, Daniel
  • Clements, Adam

Abstract

Crude oil is one of the most important commodities in the real economy and as such the relationship between oil prices and broader equity markets has attracted a lot of research attention. Recent work has considered directional spillovers or links between oil and equity markets. In recent times there has been a growing body of research into the impacts of news and media attention on asset returns, both in the context of and in particular with both the oil and equity markets but also within each of these. This paper considers how news or information flows about crude oil influence the spillover links between these assets. Using realized volatility estimates based on high frequency data, the empirical analysis reveals a number of novel results in terms of the behavior of these linkages. Increased news flow about oil reduces the impact of the broader equity market on the oil sector, implying that it is driven more by oil specific shocks and less by more general financial market conditions. It also increases the impact of the oil sector on the broader equity market. These results have potential implications for hedging and portfolio allocation.

Suggested Citation

  • Aromi, Daniel & Clements, Adam, 2019. "Spillovers between the oil sector and the S&P500: The impact of information flow about crude oil," Energy Economics, Elsevier, vol. 81(C), pages 187-196.
    • Handle: RePEc:eee:eneeco:v:81:y:2019:i:c:p:187-196
    DOI: 10.1016/j.eneco.2019.03.018
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    More about this item

    Keywords

    Investor attention; Google search volume; Google trends; Oil market; Stock market; Volatility; Spillovers;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G1 - Financial Economics - - General Financial Markets
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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