The Impact of Oil Price Shocks on the Stock Market Return and Volatility Relationship

Wensheng Kang, Ronald Ratti and Kyung Hwan Yoon ()

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: This paper examines the impact of structural oil price shocks on the covariance of U.S. stock market return and stock market volatility. We construct from daily data on return and volatility the covariance of return and volatility at monthly frequency. The measures of daily volatility are realized-volatility at high frequency (normalized squared return), conditional-volatility recovered from a stochastic volatility model, and implied-volatility deduced from options prices. Positive shocks to aggregate demand and to oil-market specific demand are associated with negative effects on the covariance of return and volatility. Oil supply disruptions are associated with positive effects on the covariance of return and volatility. The spillover index between the structural oil price shocks and covariance of stock return and volatility is large and highly statistically significant.

Keywords: Stock return and volatility; oil price shocks; stock volatility; structural VAR (search for similar items in EconPapers)
JEL-codes: E44 G10 Q41 Q43 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2014-11
New Economics Papers: this item is included in nep-ene, nep-fmk, nep-mac, nep-mst and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Related works:
Journal Article: The impact of oil price shocks on the stock market return and volatility relationship (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2014-71

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