Oil and the U.S. Stock Market: Implications for Low Carbon Policies

Ioannis Arampatzidis, Theologos Dergiades, Robert Kaufmann and Theodore Panagiotidis

Working Paper series from Rimini Centre for Economic Analysis

Abstract: We extend the existing understanding of the relation between oil prices and stock markets in two ways: (1) by evaluating the effects of the oil market on the U.S. stock market, at an aggregate level and for all forty-nine U.S. industry specific portfolios, and (2) by scrutinizing the dynamic nature of this relation, by fitting a Structural Vector Autoregression (SVAR) specification for a large set of rolling samples with fixed size. Results indicate that the effect of oil prices on the U.S. stock market depends on the type and timing of the shock. An oil supply shock generally does not have a statistically measurable effect on stock market performance. Conversely, an aggregate demand shock has a positive effect on nearly all sectors while an oil-specific demand shock has a negative effect on stock returns for most industries. These results suggest that investors can shift the portfolios consistent with smaller effects of oil-related shocks and the costs of carbon taxes and/or tradeable permits may be smaller than commonly thought if stock prices represent the net present value of profits.

Keywords: Stock markets; Oil shocks; Rolling SVAR; U.S. Industries; Carbon tax (search for similar items in EconPapers)
JEL-codes: C10 G01 G02 (search for similar items in EconPapers)
Date: 2021-08
New Economics Papers: this item is included in nep-cwa, nep-ene, nep-env and nep-isf
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Journal Article: Oil and the U.S. stock market: Implications for low carbon policies (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:rim:rimwps:21-19

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