Stock-Oil Comovement: Fundamentals or Financialization?

Alessandro Melone, Otto Randl, Leopold Sogner and Josef Zechner
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Alessandro Melone: Ohio State University
Otto Randl: Vienna University of Economics and Business
Leopold Sogner: IHS, Vienna and Vienna Graduate School of Finance

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: The return correlation between U.S. stocks and oil has shifted from negative to positive since 2008. We use a return decomposition framework to demonstrate that the underlying reason for this structural change is a shift in the correlation between cash flow news for the two assets. Intuitively, as the U.S. turned from an oil importer to a net exporter, the correlation between the cash flow news associated with oil and the U.S. stock market turned positive. Our findings help to understand the set of potential determinants of equity-commodity correlations and the diversification benefits of investing in commodities.

JEL-codes: E44 G11 G12 Q43 (search for similar items in EconPapers)
Date: 2022-11
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https://dx.doi.org/10.2139/ssrn.4205724

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Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2022-08

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