The Dynamics of Oil and Stock Prices Comovements

Claire G. Gilmore, Ginette M. McManus, Rajneesh Sharma and Ahmet Tezel

International Journal of Financial Research, 2016, vol. 7, issue 1, 121-129

Abstract: The dynamic relationships between crude oil prices, oil sector stock price indices and stock market price indices is examined and evidence of cointegration between these variables is found. A vector error-correction (VEC) model reveals that the stock prices of companies in the integrated oil and gas sector have a long-run negative relationship with oil prices while those in the oil and gas exploration and production sector have a long-run positive relationship with oil prices. Both indices have a long-run relationship with mid- and small-capitalization stock prices. However, following shocks to oil sector indices, oil prices tends to restore the long-term equilibrium. These findings should be useful to investors in their attempts at appropriately structure their overall portfolios.

Keywords: oil prices; oil sector stock prices; cointegration; variance decompositions (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:jfr:ijfr11:v:7:y:2016:i:1:p:121-129

DOI: 10.5430/ijfr.v7n1p121

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