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Oil shocks, policy uncertainty and earnings surprises

Author

Listed:
  • Wensheng Kang

    (Kent State University)

  • Jing Wang

    (California State University)

Abstract

The study utilizes a structural VAR model to understand the connections among oil shocks, policy uncertainty and aggregate earnings in US. We find that the positive innovations in US oil supply increase the aggregate earnings. A rise in the US policy uncertainty decreases the aggregate earnings. After 2007 with the shale oil development in US, the earnings responses to the US oil supply shocks has increased. Over time shocks to US oil supply reduce the policy uncertainty. The development of US oil production is associated with the increase in income and the enhancement on political and economy security in US. Policy uncertainty plays an important role in the transmission of oil shocks to the earnings. The structural oil price shocks explain around 35% of the overall variations in the policy uncertainty in the long run and cause long swings in the policy uncertainty. The direct effects of oil shocks on the aggregate earnings are amplified by the endogenous responses of policy uncertainty.

Suggested Citation

  • Wensheng Kang & Jing Wang, 2018. "Oil shocks, policy uncertainty and earnings surprises," Review of Quantitative Finance and Accounting, Springer, vol. 51(2), pages 375-388, August.
    • Handle: RePEc:kap:rqfnac:v:51:y:2018:i:2:d:10.1007_s11156-017-0674-5
    DOI: 10.1007/s11156-017-0674-5
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    References listed on IDEAS

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    Cited by:

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    4. Rui Fan & Oleksandr Talavera & Vu Tran, 2020. "Social media, political uncertainty, and stock markets," Review of Quantitative Finance and Accounting, Springer, vol. 55(3), pages 1137-1153, October.
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    6. Zhu, Xuehong & Liao, Jianhui & Chen, Ying, 2021. "Time-varying effects of oil price shocks and economic policy uncertainty on the nonferrous metals industry: From the perspective of industrial security," Energy Economics, Elsevier, vol. 97(C).

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    More about this item

    Keywords

    Aggregate earnings; Oil shocks; Policy uncertainty; Structural VAR;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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