Oil Price Shocks and Stock Market Bubbles

Elie Bouri (), Ufuk Can (), Oguzhan Cepni and Rangan Gupta ()
Additional contact information
Elie Bouri: School of Business, Lebanese American University, Lebanon
Rangan Gupta: Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa

No 202546, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper investigates the impact of real-time structural oil price (forward-looking demand, current demand, and supply) shocks on daily US stock market positive and negative bubbles across short-, medium-, and long-terms from June 2007 to January 2025. The results from local projection models show strong and asymmetric impact, which is generally contingent on the nature of oil price shocks. Forward-looking demand shocks can drive stock market crashes or significant recoveries, by providing a bad or good signal contingent on the initial condition of the stock market. Current demand shocks tend to behave pro-cyclically, reinforcing medium-term positive bubbles while suppressing negative ones. In contrast, oil supply shocks are destabilizers, dampening conditions for positive bubbles and amplifying negative ones. These findings demonstrate that the US stock market’s boom–bust dynamics are significantly affected by the structural source of oil price movements, which offers important implications for policymakers and investors seeking to anticipate and mitigate financial instability.

Keywords: Multi-Scale Positive and Negative Bubbles; Stock Market; Oil Shocks; Local Projections Model (search for similar items in EconPapers)
JEL-codes: C22 G10 G12 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2025-12
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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: https://EconPapers.repec.org/RePEc:pre:wpaper:202546

Access Statistics for this paper

More papers in Working Papers from University of Pretoria, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Rangan Gupta ().