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Oil Prices, Stock Markets and Portfolio Investment: Evidence from Sector Analysis in Europe over the Last Decade

  • Mohamed El Hedi Arouri

    ()

    (EconomiX - CNRS : UMR7166 - Université de Paris X - Nanterre, LEO - Laboratoire d'économie d'Orleans - CNRS : UMR6221 - Université d'Orléans)

  • Duc Khuong Nguyen

    (CERAG - Centre d'études et de recherches appliquées à la gestion - CNRS : UMR5820 - Université Pierre Mendès-France - Grenoble II)

This article extends the understanding of oil–stock market relationships over the last turbulent decade. Unlike previous empirical investigations, which have largely focused on broad-based market indices (national and/or regional indices), we examine short-term linkages in the aggregate as well as sector by sector levels in Europe using different econometric techniques. Our main findings suggest that the reactions of stock returns to oil price changes differ greatly depending on the activity sector. In the out-of-sample analysis we show that introducing oil asset into a diversified portfolio of stocks allows to significantly improve its risk-return characteristics.

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Paper provided by HAL in its series Working Papers with number hal-00507823.

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Date of creation: 01 Aug 2010
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Handle: RePEc:hal:wpaper:hal-00507823
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