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How do international stock markets respond to oil demand and supply shocks?

  • Jochen H. F. Güntner

    ()

    (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

Building on Kilian and Park's (2009) structural VAR analysis of the effects of oil demand and supply shocks on the U.S. stock market, this paper studies the responses of a broader set of stock markets in six OECD member countries. The focus is on the differences and commonalities in the response of stock prices in net oil exporting and net oil importing economies during 1974-2011. Structural oil price shocks aid our understanding of historical fluctuations in stock returns - in particular of the 2008 stock market crash. I find that unexpected shortfalls in global oil supply have no significant impact on the stock market in any of the six countries. While an increase in global aggregate demand consistently raises oil prices and cumulative stock returns, the effect is more persistent for net oil exporters and more pronounced for Norway. Other, e. g., precautionary oil demand shocks have a detrimental impact on the stock market in oil importing countries, a statistically insignificant effect for Canada, and a significantly positive effect for Norway. Oil prices account for a larger fraction of the forecast error variance in global relative to national stock returns.

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File URL: http://www.fww.ovgu.de/fww_media/femm/femm_2011/2011_28.pdf
File Function: First version, 2011
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Paper provided by Otto-von-Guericke University Magdeburg, Faculty of Economics and Management in its series FEMM Working Papers with number 110028.

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Length: 27 pages
Date of creation: Dec 2011
Date of revision:
Handle: RePEc:mag:wpaper:110028
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  1. Sílvia Gonçalves & Lutz Kilian, 2003. "Bootstrapping Autoregressions with Conditional Heteroskedasticity of Unknown Form," CIRANO Working Papers 2003s-17, CIRANO.
  2. Chen, Nai-Fu & Roll, Richard & Ross, Stephen A, 1986. "Economic Forces and the Stock Market," The Journal of Business, University of Chicago Press, vol. 59(3), pages 383-403, July.
  3. Kilian, Lutz & Rebucci, Alessandro & Spatafora, Nikola, 2009. "Oil shocks and external balances," Journal of International Economics, Elsevier, vol. 77(2), pages 181-194, April.
  4. James D. Hamilton, 2008. "Understanding Crude Oil Prices," NBER Working Papers 14492, National Bureau of Economic Research, Inc.
  5. Lutz Kilian, 2009. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," American Economic Review, American Economic Association, vol. 99(3), pages 1053-69, June.
  6. Nicholas Apergis & Stephen M. Miller, 2009. "Do Structural Oil-Market Shocks Affect Stock Prices?," Working Papers 0917, University of Nevada, Las Vegas , Department of Economics.
  7. Hamilton, James D., 2003. "What is an oil shock?," Journal of Econometrics, Elsevier, vol. 113(2), pages 363-398, April.
  8. Hamilton, James D & Herrera, Ana Maria, 2004. "Oil Shocks and Aggregate Macroeconomic Behavior: The Role of Monetary Policy: Comment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(2), pages 265-86, April.
  9. Kilian, Lutz & Vega, Clara, 2008. "Do Energy Prices Respond to U.S. Macroeconomic News? A Test of the Hypothesis of Predetermined Energy Prices," CEPR Discussion Papers 7015, C.E.P.R. Discussion Papers.
  10. Robert Barsky & Lutz Kilian, 2004. "Oil and the Macroeconomy Since the 1970s," NBER Working Papers 10855, National Bureau of Economic Research, Inc.
  11. Robert B. Barsky & Lutz Kilian, 2001. "Do We Really Know that Oil Caused the Great Stagflation? A Monetary Alternative," NBER Working Papers 8389, National Bureau of Economic Research, Inc.
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  18. 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.
  19. Lutz Kilian & Daniel P. Murphy, 2014. "The Role Of Inventories And Speculative Trading In The Global Market For Crude Oil," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 29(3), pages 454-478, 04.
  20. Nandha, Mohan & Faff, Robert, 2008. "Does oil move equity prices? A global view," Energy Economics, Elsevier, vol. 30(3), pages 986-997, May.
  21. Sadorsky, Perry, 2001. "Risk factors in stock returns of Canadian oil and gas companies," Energy Economics, Elsevier, vol. 23(1), pages 17-28, January.
  22. El-Sharif, Idris & Brown, Dick & Burton, Bruce & Nixon, Bill & Russell, Alex, 2005. "Evidence on the nature and extent of the relationship between oil prices and equity values in the UK," Energy Economics, Elsevier, vol. 27(6), pages 819-830, November.
  23. Jones, Charles M & Kaul, Gautam, 1996. " Oil and the Stock Markets," Journal of Finance, American Finance Association, vol. 51(2), pages 463-91, June.
  24. Christiane Baumeister & Lutz Kilian, 2011. "Real-Time Forecasts of the Real Price of Oil," Working Papers 11-16, Bank of Canada.
  25. Lutz Kilian, 2008. "A Comparison of the Effects of Exogenous Oil Supply Shocks on Output and Inflation in the G7 Countries," Journal of the European Economic Association, MIT Press, vol. 6(1), pages 78-121, 03.
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