Oil and Stock Market Returns: Direction, Volatility or Liquidity?

Harald Kinateder and Niklas Wagner

Chapter 15 in Modern Finance and Risk Management:Festschrift in Honour of Hermann Locarek-Junge, 2022, pp 335-351 from World Scientific Publishing Co. Pte. Ltd.

Abstract: We examine how oil market variables affect short-term stock market returns in the US and in six other major oil-importing countries. Apart from oil price direction, we also consider oil market volatility and liquidity. Analysis of daily returns during the 2007–2017 period reveals that oil price direction has a significant positive effect on returns for all markets, which can be interpreted as evidence of oil as a business climate indicator. Furthermore, for the US market, shocks to implied oil market volatility negatively affect stocks, this effect is significantly asymmetric, and declining oil market liquidity predicts declining stock prices.

Keywords: Finance; Risk Management; Commodities; Energy Finance; Risk; Cryptocurrencies; Asset Management; Banking; Behavioral Finance; Behavioural Finance; Markowitz; Portfolio Selection; Asset Allocation; Crowdfunding; COVID; Pandemic; Corona; Investment Strategies; Low-Risk Investments; Social Banks; Excess Liquidity; Cost of Capital; Utilities; Network Industries; Private Equity; Small and Medium-Sized Enterprises; Black Swan; Statistical Inference; Maximum Likelihood; Bayesian Methods; Tail Risks; Conditional Value-at-Risk; Tail Nonlinearly Transformed Risk; Capital Constraints; Bank Regulation; Subjective Risk Assessment; Expert Knowledge; Model Risk; Risk Factors; Option Pricing; Volatility; Resilience; Supply Chains; Disruption; Systemic Risk; Oil; Renewable Energies; Corporate Risk Management; Power Purchase Agreements; Gold; Precious Metals; Dynamic Correlation; Mixed Data Sampling (search for similar items in EconPapers)
JEL-codes: G11 G3 G32 G4 (search for similar items in EconPapers)
Date: 2022
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