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Oil price shocks and volatility do predict stock market regimes

Author

Listed:
  • Stavros Degiannakis

    () (Bank of Greece)

  • Timotheos Angelidis

    (University of Peloponnese)

  • George Filis

    (Bournemouth University)

Abstract

The paper investigates whether oil price shocks and oil price volatility provide predictive information for the state of the US stock market returns and volatility. The disaggregation of oil price shocks according to their origin allows us to assess whether they contain incremental forecasting power on the state of the stock market returns and volatility, a case that does not hold for the oil price returns. Overall, the results suggest that oil price returns and volatility possess the power to forecast the state of stock market returns and volatility. The full effects of oil price returns, though, can only be revealed when the oil price shocks are disentangled and as such we claim that the oil price shocks have an incremental power in forecasting the state of the stock market. The findings are important for stock market forecasters and investors dealing with stock and derivatives markets.

Suggested Citation

  • Stavros Degiannakis & Timotheos Angelidis & George Filis, 2013. "Oil price shocks and volatility do predict stock market regimes," Working Papers 170, Bank of Greece.
  • Handle: RePEc:bog:wpaper:170
    as

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    File URL: http://www.bankofgreece.gr/BogEkdoseis/Paper2013171.pdf
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    References listed on IDEAS

    as
    1. Tagkalakis, Athanasios O., 2013. "Audits and tax offenders: Recent evidence from Greece," Economics Letters, Elsevier, vol. 118(3), pages 519-522.
    2. Olivier J. Blanchard & Daniel Leigh, 2013. "Growth Forecast Errors and Fiscal Multipliers," American Economic Review, American Economic Association, vol. 103(3), pages 117-120, May.
    3. Cemile Sancak & Jing Xing & Ricardo Velloso, 2010. "Tax Revenue Response to the Business Cycle," IMF Working Papers 10/71, International Monetary Fund.
    4. Tigran Poghosyan, 2011. "Assessing the Variability of Tax Elasticities in Lithuania," IMF Working Papers 11/270, International Monetary Fund.
    5. John Brondolo, 2009. "Collecting Taxes During an Economic Crisis; Challenges and Policy Options," IMF Staff Position Notes 2009/17, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Decomposition of shocks; oil price shocks; oil price volatility; regime switching; stock market volatility; US stock market;

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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