Oil price shocks and stock market activities: Evidence from oil-importing and oil-exporting countries
TL;DR: In this paper, a structural VAR analysis of the stock market response to oil price shocks is presented, showing that the magnitude, duration, and even direction of response by stock market in a country to price shocks highly depend on whether the country is a net importer or exporter in the world oil market, and whether changes in oil price are driven by supply or aggregate demand.
About: This article is published in Journal of Comparative Economics.The article was published on 2013-11-01. It has received 395 citations till now. The article focuses on the topics: Stock market & Aggregate demand.
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TL;DR: In this article, the authors used a set of newly introduced implied volatility indexes to investigate the directional connectedness between oil and equities in eleven major stock exchanges around the globe from 2008 to 2015.
304Â citations
TL;DR: In this article, the authors investigated the relationship between oil shocks and stock markets from a new systemic perspective and showed that the contribution of oil shocks to the world financial system is limited.
272Â citations
TL;DR: In this paper, the authors re-examine the relationship between oil price and stock prices in oil exporting and oil importing countries in the following distinct ways: first, they account for possible nonlinearities in the relationship in order to quantify the asymmetric response of stock prices of these two categories to positive and negative oil price changes.
223Â citations
TL;DR: In this article, the authors investigated the impact of crude oil shocks and China's economic policy uncertainty on stock returns at different locations on the return distributions, based on monthly data from 1995:1 to 2016:3.
222Â citations
TL;DR: The authors provided some preliminary estimates about the behavior of oil-stock nexus during the COVID-19 pandemic and found that stock markets may experience greater initial and prolonged impacts of own and cross shocks during the pandemic than the period before it.
210Â citations
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TL;DR: The authors found that all but one of the U.S. recessions since World War II have been preceded, typically with a lag of around three-fourths of a year, by a dramatic increase in the price of crude petroleum.
Abstract: All but one of the U.S. recessions since World War II have been preceded, typically with a lag of around three-fourths of a year, by a dramatic increase in the price of crude petroleum. This does not mean that oil shocks caused these recessions. Evidence is presented, however, that even over the period 1948-72 this correlation is statistically significant and nonspurious, supporting the proposition that oil shocks were a contributing factor in at least some of the U.S. recessions prior to 1972. By extension, energy price increases may account for much of post-OPEC macroeconomic performance.
3,391Â citations
TL;DR: In this article, a structural decomposition of the real price of crude oil is proposed, based on a newly developed measure of global real economic activity, and the authors estimate the dynamic effects of these shocks on the real prices of oil.
Abstract: Using a newly developed measure of global real economic activity, a structural decomposition of the real price of crude oil into three components is proposed: crude oil supply shocks; shocks to the global demand for all industrial commodities; and demand shocks that are specific to the crude oil market. The latter shock is designed to capture shifts in the price of oil driven by higher precautionary demand associated with concerns about future oil supply shortfalls. The paper estimates the dynamic effects of these shocks on the real price of oil. A historical decomposition sheds light on the causes of the major oil price shocks since 1975. The implications of higher oil prices for U.S. real GDP and CPI inflation are shown to depend on the cause of the oil price increase. Changes in the composition of shocks help explain why regressions of macroeconomic aggregates on oil prices tend to be unstable. Evidence that the recent increase in crude oil prices was driven primarily by global aggregate demand shocks helps explain why this oil price shock so far has failed to cause a major recession in the U.S.
2,670Â citations
TL;DR: In this article, it is shown that continuous time arbitrage and stochastic control theory may be used not only to value such projects but also to determine the optimal policies for developing, managing, and abandoning them.
Abstract: Notwithstanding impressive advances in the theory of finance over the past 2 decades, practical procedures for capital budgeting have evolved only slowly. The standard technique, which has remained unchanged in essentials since it was originally proposed (see Dean 1951; Bierman and Smidt 1960), derives from a simple adaptation of the Fisher (1907) model of valuation under certainty: under this technique, expected cash flows from an investment project are discounted at a rate deemed appropriate to their risk, and the resulting present value is compared with the cost of the project. This standard textbook technique reflects modern theoretical developments only insofar as estimates of the discount rate may be obtained from crude application of single period asset pricing theory (but see Brennan 1973; Bogue and Roll 1974; Turnbull 1977; Constantinides 1978). The inadequacy of this approach to capital budgeting is widely acknowledged, although not widely discussed. Its obvious deficiency is its The evaluation of mining and other natural resource projects is made particularly difficult by the high degree of uncertainty attaching to output prices. It is shown that the techniques of continuous time arbitrage and stochastic control theory may be used not only to value such projects but also to determine the optimal policies for developing, managing, and abandoning them. The approach may be adapted to a wide variety of contexts outside the natural resource sector where uncertainty about future project revenues is a paramount concern.
2,364Â citations
TL;DR: In this article, the authors build on the theory of irreversible choice under uncertainty to explain cyclical investment fluctuations and show that when individual projects are irreversible, agents must make investment timing decisions that trade off the extra returns from early commitment against the benefits of increased information gained by waiting.
Abstract: This paper builds on the theory of irreversible choice under uncertainty to give an explanation of cyclical investment fluctuations. The key observation is that, when individual projects are irreversible, agents must make investment timing decisions that trade off the extra returns from early commitment against the benefits of increased information gained by waiting. In an environment in which the underlying stochastic structure is itself subject to random change, events whose long-run implications are uncertain can create an investment cycle by temporarily increasing the returns to waiting for information.
2,352Â citations
TL;DR: This article found that after 1986, oil price movements explained a larger fraction of the forecast error variance in real stock returns than do interest rates, and that oil price volatility shocks have asymmetric effects on the economy.
1,782Â citations