Oil supply and demand shocks and stock price: Empirical evidence for some OECD countries (original) (raw)

Exploring the oil supply-demand shocks and stock market stabilities: Experience from OECD countries

2018

This paper explores the interactive relationships between oil price shocks and the stockmarket in 11 OECD countries using traditional cointegrationtest and look at the rolling window Granger causality effects with various predictive power contents running between the variables. Taking into account both world oil production and world oil prices in order to supervise for oil supply and oil demand shocks, strong evidence of the sensitivity of stock market returns to the oil priceshock specifications is found in several sub-periods. As for rolling window causality tests, it is found that the impact of oil price shocks substantially differs along the different countries and that the results also differ among the various oil shock specifications.The overall finding suggests that oil supply shocks have a negative effect on stock market returns in the net oil importing OECD countries. Indeed, the stock market returns are negatively impacted by oil demand shocks in the oil importing OECD cou...

Oil Price Shocks and Stock Market Performance in Emerging Economies: Some Evidence using FAVAR Models

2016

This paper examines the response of real stock prices to oil price shocks for four selected emerging economies over the period January 1991–March 2011. To overcome the problem of omitted information in small-scale vector autoregression (VAR) models, we utilize the factor augmented vector autoregressive (FAVAR) approach proposed by Bernanke et al. (2005). Accordingly, we follow Stock and Watson (2002b) and extract two factors which are significantly related with a large set of world-level and country-specific macroeconomic variables. We use the extracted factors as regressors in recursive VARs to assess the response of stock prices to oil price shocks. Our results suggest that the response of stock prices to oil price shocks is quite persistent and precise, but asymmetric across all the four economies. Specifically, we observe that stock prices in Brazil and India respond negatively to oil price shocks, whereas the response of stock prices to oil price shocks in China is positive. We...

IMPACT OF OIL PRICES ON STOCK MARKETS: EMPIRICAL EVIDENCE FROM SELECTED MAJOR OIL PRODUCING AND CONSUMING COUNTRIES

This paper analyzes the impact of oil prices on stock prices of selected major oil producing and consuming countries with nominal exchange rate as additional determinant. Daily stock prices, oil prices, and exchange rates for six countries (Mexico, Russia, Saudi Arabia, India, China, and the US.) from January 26, 2000 to January 22, 2010, are modeled as a cointegrated system in Vector Autoregressive analysis. Variance decompositions and impulse responses are also estimated. Our empirical results support unit root in all variables (except Saudi Arabia and the US exchange rates that are stationary in levels and first difference). Evidence of one long-run relationship (Mexico inconclusive) in Saudi Arabia, India, China and the US is supported, while Russia exhibits two long-run relationships. The results from the long-run exclusion test suggest all three variables cannot be eliminated from cointegrating space in all countries (except Mexico), while the weak exogeneity test reveals all variables to be responsive to deviation from long-run relationships (except China). Unlike the exchange rates, stock and oil prices are nonresponsive to deviations in the long-run in China. In all countries, variance decomposition and impulse response tests confirm existence of oil prices and exchange rates influences over stock prices.