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Global Oil Market and the U.S. Stock Returns

Maryam Ahmad, Matteo Manera () and Mehdi Sadeghzadeh
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Maryam Ahmad: Lombardy Advanced School of Economic Research (LASER)
Mehdi Sadeghzadeh: Bocconi University

No 2015.91, Working Papers from Fondazione Eni Enrico Mattei

Abstract: This paper provides an analysis of the link between the oil market and the U.S. stock market returns at the aggregate as well as industry levels. We empirically model oil price changes as driven by speculative demand shocks along with consumption demand and supply shocks in the oil market. We also take into account in our model all the factors that affect stock market price movements over and above the oil market, in order to quantify the pure effect of oil price shocks on returns. The results show that stock returns respond to oil price shocks differently, depending on the causes behind the shocks. Impulse response analysis suggests that consumption demand shocks are the most relevant drivers of the stock market return, relative to other oil market driven shocks. Industry level analysis is performed to control for the heterogeneity of the responses of returns to oil price changes. The results show that both cost side and demand side effects of oil price shocks matter for the responses of industries to oil price shocks. However, the main driver of the variation in industries’ returns is the shock to aggregate stock market.

Keywords: Oil Market; Oil Price; Stock Market (search for similar items in EconPapers)
JEL-codes: G1 G12 Q41 (search for similar items in EconPapers)
Date: 2015-10
New Economics Papers: this item is included in nep-ene and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Global oil market and the U.S. stock returns (2016) Downloads
Working Paper: Global Oil Market and the U.S. Stock Returns (2016) Downloads
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