Economics at your fingertips  

Disaggregating the impact of oil prices on European industrial equity indices: a spatial econometric analysis

Syed Mujahid Hussain (), Amjad Naveed, Sheraz Ahmed and Nisar Ahmad
Additional contact information
Syed Mujahid Hussain: Sultan Qaboos University
Sheraz Ahmed: LUT University
Nisar Ahmad: Sultan Qaboos University

Empirical Economics, 2022, vol. 62, issue 6, No 2, 2673-2692

Abstract: Abstract This study investigates the relationship between daily returns of oil and ten European industrial equity indices for the period 2008–2017 using the spatial econometric technique. In our settings, the historical co-movements of sectoral returns are incorporated while modelling the contemporaneous relationships between oil and European sectoral returns. After controlling for regional and global equity risk factors, we find that oil returns pose a significantly positive effect on sectoral indices’ returns in line with previous studies. However, the magnitude of economic impact found mostly by earlier studies was largely underestimated without considering the co-movements of sectoral indices. The use of spatial econometric technique allowed us to disaggregate the total impact into a direct (due to oil price) and an indirect (due to spillover effect because of intra-industry co-movements) effect of oil price changes. Our results indicate that the direct economic impact of changes in oil prices on industrial returns is almost 31% more than what has been found by earlier studies. The negative spatial dependence among sectoral indices provides a useful tool to identify the source of the indirect impact of oil on overall equity prices in Europe that in turn explains the overestimation of direct impact by 31%.

Keywords: Spatial econometrics; European industrial indices; Euro STOXX; Oil prices; G20; G30 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from
http://www.springer. ... rics/journal/181/PS2

DOI: 10.1007/s00181-021-02116-1

Access Statistics for this article

Empirical Economics is currently edited by Robert M. Kunst, Arthur H.O. van Soest, Bertrand Candelon, Subal C. Kumbhakar and Joakim Westerlund

More articles in Empirical Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().

Page updated 2023-11-13
Handle: RePEc:spr:empeco:v:62:y:2022:i:6:d:10.1007_s00181-021-02116-1