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Oil Price Shocks and Volatility in Australian Stock Returns ‎

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  • Ratti, Ronald A.
  • Hasan, M. Zahid

Abstract

This paper examines the effect of oil shocks on return and volatility in the sectors of ‎Australian stock market and finds significant effects for most sectors. For the overall market ‎index, an increase in oil price return significantly reduces return, and an increase in oil price ‎return volatility significantly reduces volatility. An advantage of looking at sector returns ‎rather than a general index of stock returns is that sectors may well differ markedly in how ‎they respond to oil price shocks. The energy and material sectors (as expected) and the ‎financial sector (surprisingly) are out of step (in different ways) with results for the other ‎sectors and for the overall index. A rise in oil price increases returns in the energy and material ‎sectors and an increase in oil price return volatility increases stock return volatility in the ‎financial sector. Explanation for the negative (positive) association between oil return (oil ‎return volatility) and returns (volatility of returns) in the financial sector must be based on the ‎association via lending to and/or holdings of corporate bonds issued by firms with significant ‎exposure to oil price fluctuations and their speculative positions in oil related instruments. ‎

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  • Ratti, Ronald A. & Hasan, M. Zahid, 2013. "Oil Price Shocks and Volatility in Australian Stock Returns ‎," MPRA Paper 49043, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:49043
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    More about this item

    Keywords

    oil price shocks; volatility in stock returns; Australian sector returns;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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