Impact of oil price fluctuations on financial markets since 2014

Ha Nguyen, Huong Nguyen and Anh Pham

No 7957, Policy Research Working Paper Series from The World Bank

Abstract: This paper investigates the causal impact of oil price fluctuations on financial markets since January 2014. Following a heteroscedasticity-based event study approach, the paper instruments changes in oil prices by exogenous shocks in oil supply. It finds that oil price declines raise uncertainty and hurt risky assets (U.S. stocks and high-yield corporate bonds) while lifting safe assets (U.S. investment-grade bonds and long-term Treasury bonds). In addition, lower oil prices boost the U.S. dollar and reduce the prices of emerging market equities. Remarkably, the declines in oil prices hurt several sectors that supposedly benefit from lower oil prices, such as basic materials, industrials, and transportation.

Keywords: Economic Insecurity; Oil&Gas (search for similar items in EconPapers)
Date: 2017-01-30
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