The asymmetric effects of oil price shocks on the U.S. stock market

Sajjadur Rahman

Energy Economics, 2022, vol. 105, issue C

Abstract: In this paper, we investigate the asymmetric relation between the price of crude oil and U.S. aggregate real stock returns. In doing so, we estimate a nonlinear bivariate structural vector autoregression that includes the effects of oil price volatility on stock returns. We use the estimates of our nonlinear model to calculate the responses of stock returns to unexpected increases and decreases in prices of crude oil and conduct a test of symmetry on these responses. In contrast to the existing literature, we find that aggregate returns respond asymmetrically to positive and negative oil price shocks, and oil price volatility plays a major role in asymmetries by having a negative effect on stock returns. Our empirical results hold in case of disaggregate returns, after reestimating our nonlinear bivariate model with the returns of various industries.

Keywords: Crude oil; Stock returns; Volatility; Nonlinear bivariate model (search for similar items in EconPapers)
JEL-codes: C32 E44 Q43 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:105:y:2022:i:c:s0140988321005466

DOI: 10.1016/j.eneco.2021.105694

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