Oil prices and stock markets: A review of the theory and empirical evidence

Stavros Degiannakis, George Filis and Vipin Arora ()

No BAFES22, BAFES Working Papers from Department of Accounting, Finance & Economic, Bournemouth University

Abstract: Do oil prices and stock markets move in tandem or in opposite directions? The complex and time varying relationship between oil prices and stock markets has caught the attention of the financial press, investors, policymakers, researchers, and the general public in recent years. In light of such attention, this paper reviews research on the oil price and stock market relationship. The majority of papers we survey study the impacts of oil markets on stock markets, whereas, little research in the reverse direction exists. Our review finds that the causal effects between oil and stock markets depend heavily on whether research is performed using aggregate stock market indices, sectoral indices, or firm-level data and whether stock markets operate in net oil-importing or net oil-exporting countries. Additionally, conclusions vary depending on whether studies use symmetric or asymmetric changes in the price of oil, or whether they focus on unexpected changes in oil prices. Finally, we find that most studies show oil price volatility transmits to stock market volatility, and that including measures of stock market performance improves forecasts of oil prices and oil price volatility. Several important avenues for further research are identified.

Keywords: Oil prices; stock markets; interconnectedness; forecasting; oil-importers; oil-exporters (search for similar items in EconPapers)
JEL-codes: G15 Q40 Q47 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2018-06
New Economics Papers: this item is included in nep-ene, nep-knm and nep-rmg
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Citations: View citations in EconPapers (137)

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Related works:
Journal Article: Oil Prices and Stock Markets: A Review of the Theory and Empirical Evidence (2018)
Journal Article: Oil Prices and Stock Markets: A Review of the Theory and Empirical Evidence (2018)
Working Paper: Oil Prices and Stock Markets: A Review of the Theory and Empirical Evidence (2018)
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