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Risk, uncertainty, world business cycles, and the U.S. stock-oil relationship

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  • Mollick, André Varella

Abstract

We examine in this paper the transmission of geopolitical risks (GPR), VIX, economic policy uncertainty (EPU), and “macro uncertainty” shocks to real WTI oil and U.S. stock returns (S&P 500). Structural vector autoregressions (SVAR) are applied to monthly data from 1990:1 to 2023:6 with identification based on long-run restrictions of impulse responses from risk/uncertainty measures to world industrial production. The main results are: First, oil prices respond positively to shocks in GPR and macro uncertainty in the short-run, but not to shocks in VIX and EPU. Second, stock returns respond negatively and for longer to both GPR and VIX shocks. Third, S&P 500 moves up with positive real WTI shocks for between 5 and 8 months, supporting favorable stock market reaction to oil fundamentals. By verifying shock contributions to real asset prices, the pair (GPR, VIX) outperforms other combinations of risk/uncertainty. Two-regime Markov-Switching VARs present satisfactory regime classification measures.

Suggested Citation

  • Mollick, André Varella, 2025. "Risk, uncertainty, world business cycles, and the U.S. stock-oil relationship," Journal of Commodity Markets, Elsevier, vol. 39(C).
    • Handle: RePEc:eee:jocoma:v:39:y:2025:i:c:s2405851325000352
    DOI: 10.1016/j.jcomm.2025.100491
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    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications

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