Wavelet-based evidence of the impact of oil prices on stock returns
Juan Reboredo () and
Rivera-Castro, Miguel A.
International Review of Economics & Finance, 2014, vol. 29, issue C, 145-176
We examine the relationship between oil and stock markets in Europe and the USA at the aggregate and sectoral levels using wavelet multi-resolution analysis. Wavelet decomposition of the original time series is useful in characterizing the oil–stock price relationship at different time scales, in revealing contagion and interdependence between oil and stock prices (as in the recent global financial crisis) and in analysing oil lead and lag effects on stock prices through wavelet cross-correlation. Empirical evidence for the period June 2000 to July 2011 indicates that oil price changes had no effect on stock market returns in the pre-crisis period at either the aggregate or sectoral level (with the exception of oil and gas company stock). At both levels, however, with the onset of the financial crisis we found evidence of contagion and positive interdependence between these markets. Additionally, we found no evidence of lead and lag effects in the pre-crisis period, and so reject the underreaction hypothesis. Since the onset of the financial crisis, oil price leads stock prices and vice versa for higher frequencies, whereas for lower frequencies oil and stock prices lead each other in a complex way.
Keywords: Wavelet decomposition; Oil prices; Stock prices; Contagion; Interdependence (search for similar items in EconPapers)
JEL-codes: C22 C58 G01 Q40 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (70) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:29:y:2014:i:c:p:145-176
Access Statistics for this article
International Review of Economics & Finance is currently edited by H. Beladi and C. Chen
More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().