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Oil price shocks and stock market volatility: evidence from European data

Author

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  • Stavros Degiannakis

    (Bank of Greece)

  • George Filis

    (Bournemouth University)

  • Renatas Kizys

    (University of Portsmouth)

Abstract

The paper investigates the effects of oil price shocks on stock market volatility in Europe by focusing on three measures of volatility, i.e. the conditional, the realised and the implied volatility. The findings suggest that supply-side shocks and oil specific demand shocks do not affect volatility, whereas, oil price changes due to aggregate demand shocks lead to a reduction in stock market volatility. More specifically, aggregate demand oil price shocks have significant explanatory power on both current- and forward-looking volatilities. The results are qualitatively similar for aggregate stock market volatility and industrial sectors’ volatilities. Finally, a robustness exercise using short- and long-run volatility models supports the findings.

Suggested Citation

  • Stavros Degiannakis & George Filis & Renatas Kizys, 2013. "Oil price shocks and stock market volatility: evidence from European data," Working Papers 161, Bank of Greece.
    • Handle: RePEc:bog:wpaper:161
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    More about this item

    Keywords

    Conditional Volatility; Realised Volatility; Implied Volatility; Oil Price Shocks; SVAR;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • 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
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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