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Crude oil shocks and stock market returns

Author

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  • Babatunde Olatunji Odusami
Abstract
This article examines whether nonlinear crude oil effect observed in aggregate US stock return can be explained by unexpected shocks from the crude oil market. I separate the distribution of aggregate US stock return into variance component driven by smoothly arriving news information and discrete Poisson news arriving from the crude oil market. I find that unexpected crude oil shocks have nonlinear effect on excess US stock market return. Contemporaneous and lagged returns on crude oil futures have significant negative effect on jump distribution in US stock market returns. I also investigate if the volatility of aggregate US stock return is in any way related to information released at the Organization of Petroleum Exporting Countries (OPEC) meetings. The empirical result reveals no significant feedback effect from OPEC meetings to the US stock markets.

Suggested Citation

  • Babatunde Olatunji Odusami, 2009. "Crude oil shocks and stock market returns," Applied Financial Economics, Taylor & Francis Journals, vol. 19(4), pages 291-303.
    • Handle: RePEc:taf:apfiec:v:19:y:2009:i:4:p:291-303
    DOI: 10.1080/09603100802314476
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    References listed on IDEAS

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    Cited by:

    1. Fan, Qinbin & Jahan-Parvar, Mohammad R., 2012. "U.S. industry-level returns and oil prices," International Review of Economics & Finance, Elsevier, vol. 22(1), pages 112-128.
    2. Bing Xu, 2015. "Oil prices and UK industry-level stock returns," Applied Economics, Taylor & Francis Journals, vol. 47(25), pages 2608-2627, May.
    3. Ahmadi, Maryam & Manera, Matteo & Sadeghzadeh, Mehdi, 2016. "Global oil market and the U.S. stock returns," Energy, Elsevier, vol. 114(C), pages 1277-1287.
    4. Ciner, Cetin, 2013. "Oil and stock returns: Frequency domain evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 23(C), pages 1-11.
    5. Imad Moosa & Sulaiman Al-Abduljader, 2010. "A test of the news model of stock price determination in an emerging market: the case of Kuwait," Applied Financial Economics, Taylor & Francis Journals, vol. 20(5), pages 397-405.
    6. Ahmadi, Maryam & Manera, Matteo & Sadeghzadeh, Mehdi, 2019. "The investment-uncertainty relationship in the oil and gas industry," Resources Policy, Elsevier, vol. 63(C), pages 1-1.
    7. Mohamed El Hédi Arouri & Christophe Rault, 2010. "Les effets des fluctuations du prix du pétrole sur les marchés boursiers dans les pays du Golfe," Revue économique, Presses de Sciences-Po, vol. 61(5), pages 945-959.
    8. Riadh El abed, 2017. "Exploring the nexus between Stock prices and Macroeconomic shocks: Panel VAR approach," Economics Bulletin, AccessEcon, vol. 37(3), pages 2053-2066.
    9. Odusami, Babatunde Olatunji, 2010. "To consume or not: How oil prices affect the comovement of consumption and aggregate wealth," Energy Economics, Elsevier, vol. 32(4), pages 857-867, July.
    10. Riadh El ABED & Amna ZARDOUB, 2019. "Exploring the nexus between macroeconomic variables and stock market returns in Germany: An ARDL Co-integration approach," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(2(619), S), pages 139-148, Summer.
    11. Gaye GENCER & Sercan DEMIRALAY, 2013. "The impact of oil prices on sectoral returns: an empirical analysis from Borsa Istanbul," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(12(589)), pages 7-24, December.

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