Oil prices & stock returns: Modeling the asymmetric effects around the zero lower bound

Naafey Sardar and Shahil Sharma

Energy Economics, 2022, vol. 107, issue C

Abstract: This paper aims to investigate the nonlinear relationship between oil prices and stock returns around the zero lower bound. Using state-dependent local projections, we find that oil price shocks cause an increase in stock returns when the economy is operating in the zero lower bound. On the other hand, oil prices and stock returns mostly show a negative relationship when interest rates are higher. Our results are robust to the inclusion of variables that control for the state of the economy, as well as exogenous measures of oil price shocks derived following Kilian (2009) and Känzig (2021). This study, thus emphasizes the need for investors and policy makers to consider asymmetries in the impact of oil price shocks across the zero lower bound when analyzing the aggregate stock market behavior.

Keywords: Asymmetric response; Zero lower bound; Oil price shocks; Stock returns (search for similar items in EconPapers)
JEL-codes: C32 E32 E44 E50 G10 Q43 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:107:y:2022:i:c:s0140988322000056

DOI: 10.1016/j.eneco.2022.105814

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