Oil and the Stock Market Revisited: A Mixed Functional VAR Approach
Hilde C. Bjørnland,
Yoosoon Chang (yoosoon@iu.edu) and
Jamie Cross
Authors registered in the RePEc Author Service: Hilde Christiane Bjørnland (hilde.c.bjornland@bi.no)
CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University
Abstract:
This paper proposes a new mixed vector autoregression (MVAR) model to examine the relationship between aggregate time series and functional variables in a multivariate setting. The model facilitates a re-examination of the oil-stock price nexus by estimating the effects of demand and supply shocks from the global market for crude oil on the entire distribution of U.S. stock returns since the late 1980s. We show that the MVAR effectively extracts information from the returns distribution that is more relevant for understanding the oil-stock price nexus beyond simply looking at the first few moments. Using novel functional impulse response functions (FIRFs), we find that oil market demand and supply shocks tend to increase returns, reduce volatility, and have an asymmetric effect on the returns distribution as a whole. In a value-at-risk (VaR) analysis we also find that the oil market contains important information that reduces expected loss, and that the response of VaR to the oil market demand and supply shocks has changed over time.
Keywords: Oil market; stock market; oil-stock price nexus; functional VAR (search for similar items in EconPapers)
JEL-codes: C13 C32 C58 Q41 Q43 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2023-03
New Economics Papers: this item is included in nep-des, nep-ene and nep-mac
References: Add references at CitEc
Citations: View citations in EconPapers (3)
Downloads: (external link)
https://cama.crawford.anu.edu.au/sites/default/fil ... nd_chang_cross_0.pdf (application/pdf)
Related works:
Working Paper: Oil and the Stock Market Revisited: A mixed functional VAR approach (2023)
Working Paper: Oil and the Stock Market Revisited: A Mixed Functional VAR Approach (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2023-18
Access Statistics for this paper
More papers in CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University Contact information at EDIRC.
Bibliographic data for series maintained by Cama Admin (cama.admin@anu.edu.au).