Spillover and quantile linkage between oil price shocks and stock returns: new evidence from G7 countries

Yonghong Jiang, Gengyu Tian and Bin Mo ()
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Yonghong Jiang: Jinan University
Gengyu Tian: Jinan University
Bin Mo: Guangzhou University

Financial Innovation, 2020, vol. 6, issue 1, 1-26

Abstract: Abstract The link between crude oil price and stock returns of the Group of Seven (G7) countries (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States) was analyzed in this study using monthly data from January 1999 to March 2020. We adopt a similar approach to Kilian (Am Econ Rev 99(3):1053–1069, 2009) and construct a structural vector autoregression framework to decompose crude oil price shocks into oil supply shock, oil aggregate demand shock, and oil-specific demand shock. We then explore the distinct effects of different kinds of oil price shocks from various sources. Based on the decomposed oil price shocks, we apply the connectedness approach and QQ regression to find time-varying co-movements and tail dependence between oil price shocks and G7 stock returns. There is no general correlation between the decomposed oil prices and stock returns in these countries. The effects of oil price shocks on stock returns across different stock market conditions appear to be heterogeneous. Oil supply shock appears to be a net transmitter of spillover effects for all G7 countries within the sample period.

Keywords: Oil supply shock; Oil aggregate demand shock; Oil specific demand shock; Stock market; Spillover effect; Quantile-on-quantile (search for similar items in EconPapers)
JEL-codes: C32 F3 G15 Q4 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

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DOI: 10.1186/s40854-020-00208-y

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