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Oil Price Shocks and the Stock Market: Evidence from Japan

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  • Abhay Abhyankar
  • Bing Xu
  • Jiayue Wang

Abstract

We study, using a structural vector autoregressive (SVAR) model, the relationship between oil price shocks and the Japanese stock market. We find that oil price shocks that arise from changes in aggregate global demand are positively correlated to returns on the Japanese stock market. Thus, in contrast to the conventional wisdom, a rise in oil price is not always bad news for the Japanese stock market. On the other hand, the Japanese stock market reacts negatively to oil price increases related to oil-market specific demand shocks. Finally, different from prior research using U.S. stock market data, we find that supply and demand shocks in the global crude oil market affect returns to the Japanese stock market index through changes to expected real cash flows rather than to changes to expected returns.

Suggested Citation

  • Abhay Abhyankar & Bing Xu & Jiayue Wang, 2013. "Oil Price Shocks and the Stock Market: Evidence from Japan," The Energy Journal, , vol. 34(2), pages 199-222, April.
    • Handle: RePEc:sae:enejou:v:34:y:2013:i:2:p:199-222
    DOI: 10.5547/01956574.34.2.7
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    References listed on IDEAS

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    1. Ron Alquist & Lutz Kilian, 2010. "What do we learn from the price of crude oil futures?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(4), pages 539-573.
    2. Apergis, Nicholas & Miller, Stephen M., 2009. "Do structural oil-market shocks affect stock prices?," Energy Economics, Elsevier, vol. 31(4), pages 569-575, July.
    3. Edelstein, Paul & Kilian, Lutz, 2009. "How sensitive are consumer expenditures to retail energy prices?," Journal of Monetary Economics, Elsevier, vol. 56(6), pages 766-779, September.
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    Cited by:

    1. Ruiqi Tan & Wei Dai, 2024. "Oil Price Shocks and the Canadian Stock Market," JRFM, MDPI, vol. 17(11), pages 1-14, November.
    2. Qin, Jingrui & Cong, Xiaoping & Ma, Di & Rong, Xueyun, 2024. "Dynamic quantile connectedness between oil and stock markets: Theimpactof theinterestrate," Energy Economics, Elsevier, vol. 136(C).

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