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Oil Price Declines Could Hurt U.S. Financial Markets: The Role of Oil Price Level

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  • Ha Nguyen, Huong Nguyen, and Anh Pham

Abstract

This paper investigates the causal effects of oil price fluctuations on United Statesý financial markets using daily oil price and financial market data from 2011 to 2016. To address endogeneity, we follow the heteroscedasticity-based identification strategy by Rigobon (2003) and instrument for changes in oil prices with exogenous shocks on current and future oil supply. We find that a decline in oil price negatively affected markets after 2014 when oil price was very low, but not before 2014 when the price was relatively high. These novel findings suggest oil price level could affect the impact of a decrease in oil prices on financial markets.

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  • Ha Nguyen, Huong Nguyen, and Anh Pham, 2020. "Oil Price Declines Could Hurt U.S. Financial Markets: The Role of Oil Price Level," The Energy Journal, International Association for Energy Economics, vol. 0(Number 5), pages 1-22.
    • Handle: RePEc:aen:journl:ej41-5-nguyen
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    Cited by:

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    2. Zhang, Tianding & Zeng, Song, 2023. "Dynamic comovement and extreme risk spillovers between international crude oil and China's non-ferrous metal futures market," Resources Policy, Elsevier, vol. 80(C).
    3. Yanhong Feng & Xiaolei Wang & Shuanglian Chen & Yanqiong Liu, 2022. "Impact of Oil Financialization on Oil Price Fluctuation: A Perspective of Heterogeneity," Energies, MDPI, vol. 15(12), pages 1-20, June.
    4. Rangan Gupta & Syed Jawad Hussain Shahzad & Xin Sheng & Sowmya Subramaniam, 2023. "The role of oil and risk shocks in the high‐frequency movements of the term structure of interest rates: Evidence from the U.S. Treasury market," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 1845-1857, April.
    5. Manthos D. Delis & Kathrin de Greiff & Maria Iosifidi & Steven Ongena, 2024. "Being stranded with fossil fuel reserves? Climate policy risk and the pricing of bank loans," Financial Markets, Institutions & Instruments, John Wiley & Sons, vol. 33(3), pages 239-265, August.

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