The direct and indirect effects of oil shocks on energy related stocks
David Broadstock (),
Rui Wang and
Dayong Zhang ()
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Rui Wang: TIERS, Southwestern University of Finance and Economics, China
No 146, Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS) from Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey
We attempt to consolidate (at least in part) the vast literature on oil shocks and stock returns by decomposing the influence of oil shocks into two channels of effect: ‘direct’ and ‘indirect’. Using a simple empirical asset pricing model it is shown that oil shocks can affect stocks not only directly, but also indirectly through general market risk (which is shown to be due in part to oil shocks), or put another way that additional oil price risk exposure is embedded in the traditional market beta. As far as is known, this is the first paper explicitly quantifying both effects together. By doing so we offer a more complete picture of when and how oil shocks impact stock returns, thus allowing investors to make more informed responses to oil shocks. The results are illustrated using daily data from all (active) listed energy related stock portfolios in the Asia Pacific Region, and are robust to structural instability and the specification of oil-shock used.
Keywords: Oil Prices; Energy Related Stocks; Threshold GARCH; Asset Pricing; Structural Break. (search for similar items in EconPapers)
JEL-codes: G12 G15 (search for similar items in EconPapers)
Pages: 38 pages
New Economics Papers: this item is included in nep-ene, nep-ger and nep-sea
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Published in Economic Systems 38(3), 2014, pp. 451–467. (Revised Version)
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Persistent link: https://EconPapers.repec.org/RePEc:sur:seedps:146
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