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Stock-Oil Comovement: Fundamentals or Financialization?

Author

Listed:
  • Melone, Alessandro

    (Ohio State University)

  • Randl, Otto

    (Vienna University of Economics and Business)

  • Sogner, Leopold

    (IHS, Vienna and Vienna Graduate School of Finance)

  • Zechner, Josef

    (Vienna University of Economics and Business)

Abstract

The return correlation between U.S. stocks and oil has shifted from negative to positive since 2008. We use a return decomposition framework to demonstrate that the underlying reason for this structural change is a shift in the correlation between cash flow news for the two assets. Intuitively, as the U.S. turned from an oil importer to a net exporter, the correlation between the cash flow news associated with oil and the U.S. stock market turned positive. Our findings help to understand the set of potential determinants of equity-commodity correlations and the diversification benefits of investing in commodities.

Suggested Citation

  • Melone, Alessandro & Randl, Otto & Sogner, Leopold & Zechner, Josef, 2022. "Stock-Oil Comovement: Fundamentals or Financialization?," Working Paper Series 2022-08, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
  • Handle: RePEc:ecl:ohidic:2022-08
    DOI: 10.2139/ssrn.4205724
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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • 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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