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Global Oil Market and the U.S. Stock Returns

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  • Ahmadi, Maryam
  • Manera, Matteo
  • Sadeghzadeh, Mehdi

Abstract

This paper provides an analysis of the link between the oil market and the U.S. stock market returns at the aggregate as well as industry levels. We empirically model oil price changes as driven by speculative demand shocks along with consumption demand and supply shocks in the oil market. We also take into account in our model all the factors that affect stock market price movements over and above the oil market, in order to quantify the pure effect of oil price shocks on returns. The results show that stock returns respond to oil price shocks differently, depending on the causes behind the shocks. Impulse response analysis suggests that consumption demand shocks are the most relevant drivers of the stock market return, relative to other oil market driven shocks. Industry level analysis is performed to control for the heterogeneity of the responses of returns to oil price changes. The results show that both cost side and demand side effects of oil price shocks matter for the responses of industries to oil price shocks. However, the main driver of the variation in industries’ returns is the shock to aggregate stock market.

Suggested Citation

  • Ahmadi, Maryam & Manera, Matteo & Sadeghzadeh, Mehdi, 2016. "Global Oil Market and the U.S. Stock Returns," Energy: Resources and Markets 230599, Fondazione Eni Enrico Mattei (FEEM).
  • Handle: RePEc:ags:feemer:230599
    DOI: 10.22004/ag.econ.230599
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    Cited by:

    1. Kyritsis, Evangelos & Serletis, Apostolos, 2018. "The zero lower bound and market spillovers: Evidence from the G7 and Norway," Research in International Business and Finance, Elsevier, vol. 44(C), pages 100-123.
    2. Arango, Ignacio & Agudelo, Diego A., 2019. "How does information disclosure affect liquidity? Evidence from an emerging market," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    3. Day, Min-Yuh & Ni, Yensen & Huang, Paoyu, 2019. "Trading as sharp movements in oil prices and technical trading signals emitted with big data concerns," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 525(C), pages 349-372.
    4. Azimli, Asil, 2020. "The oil price risk and global stock returns," Energy, Elsevier, vol. 198(C).

    More about this item

    Keywords

    Resource /Energy Economics and Policy;

    JEL classification:

    • Q3 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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