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The impact of oil shocks on the stock market

Author

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  • Castro, César
  • Jiménez-Rodríguez, Rebeca

Abstract

This paper investigates the reaction of real stock returns and their volatility in the three main euro area economies (France, Germany and Italy), the U.K. and the U.S. to oil price changes caused by different shocks in the supply-side and demand-side of the global crude oil market, including the shock on the demand for oil inventories. Our findings suggest that the impact of oil supply and aggregate demand shocks on real stock returns and volatility are not altered when oil inventories are explicitly considered in the modeling of global crude oil market. However, the effects of oil-specific demand shocks on real stock returns are modified by the inclusion of oil inventories in the model, stressing the importance of the uncertainty channel in the link between the oil and stock markets. Finally, oil inventory shocks have a negative impact at medium time horizons on real stock returns, as the surge in the price of oil causes depletion of inventories.

Suggested Citation

  • Castro, César & Jiménez-Rodríguez, Rebeca, 2024. "The impact of oil shocks on the stock market," Global Finance Journal, Elsevier, vol. 60(C).
    • Handle: RePEc:eee:glofin:v:60:y:2024:i:c:s1044028324000395
    DOI: 10.1016/j.gfj.2024.100967
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    More about this item

    Keywords

    Oil market; Stock returns; Volatility; Oil inventories;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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