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Explaining the Time-varying Effects Of Oil Market Shocks On U.S. Stock Returns

Claudia Foroni, Pierre Guérin and Massimiliano Marcellino
Authors registered in the RePEc Author Service: Pierre Guérin

No 597, Working Papers from IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University

Abstract: This paper documents time-variation in the relation between oil price and U.S. equity returns based on both reduced-form and structural analyses. Our reduced-form analysis suggests that a positive correlation between equity returns and oil price has emerged starting from the financial crisis. Based on our structural analysis, we find that oil-specific demand shocks have had positive effects on the U.S. stock market since 2008 as opposed to oil supply shocks, which have no large effects on stock re turns. We also show that the time variation in the parameters of the structural VAR is very well explained by the level of the U.S. short-term interest rate and shifts in consumer confidence. Keywords: Stock Returns, Oil Market Shocks, Time-varying Parameter VAR. JEL Classification Code: G12, Q43, C32.

Date: 2017
New Economics Papers: this item is included in nep-ene
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Citations: View citations in EconPapers (22)

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