Oil news shocks and the U.S. stock market

Zeina Alsalman, Ana María Herrera and Sandeep Kumar Rangaraju

Energy Economics, 2023, vol. 126, issue C

Abstract: We study the effect of oil news shocks on U.S. aggregate and industry-level stock returns. Using a Proxy-VAR and a sample from January 1973 to December 2019, we find no significant effect on aggregate stock price index on impact, but a persistent and significant drop at longer horizons. An important degree of heterogeneity is found in the industry-level responses: stock returns for precious metals, coal, petroleum and natural gas, and utilities increase significantly and persistently after the shock, whereas consumer goods, rubber and plastic, automobiles, and trucks fall briefly. Moreover, our estimates indicate that oil news shocks pose a risk for IT sectors whose returns exhibit losses. When we extend the sample to December 2022, we uncover a crucial change in the dynamics of the oil surprise measure: it is contaminated by lags of the oil price. We illustrate how using the oil surprise as an instrumental variable in the extended sample produces puzzling responses of industry-level stock returns, whereas a purged measure of the oil surprise leads to more stable estimates.

Keywords: Oil prices; U.S. stock returns; OPEC; Proxy-VAR (search for similar items in EconPapers)
JEL-codes: C32 E32 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:126:y:2023:i:c:s0140988323003894

DOI: 10.1016/j.eneco.2023.106891

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