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Oil price shocks and stock market anomalies

Author

Listed:
  • Zhaobo Zhu

    (Audencia Business School)

  • Licheng Sun

    (ODU - Old Dominion University [Norfolk])

  • Jun Tu

    (Singapore Management University)

  • Qiang Ji

    (UCAS - University of Chinese Academy of Sciences [Beijing] - CAS - Chinese Academy of Sciences [Beijing])

Abstract

This paper provides a novel perspective to the nexus of oil prices and stock markets by examining the impact of oil price shocks on stock market anomalies. After decomposing oil price shocks into three types (Kilian, 2009), we find that aggregate demand shocks have the strongest influence on stock market anomalies. In contrast, oil supply shocks and oil specific demand shocks have little impact. Similar results are also found in the industry analysis. Interestingly, the link between aggregate demand shocks and anomalies are the strongest among firms with either small size or high idiosyncratic risks. The documented effects are robust after controlling for investor sentiment as well as several well-known macroeconomic or market factors. Our findings are consistent with but also extend the results of Stambaugh, Yu, and Yuan (2012) in that we show that uncertainty also plays a role in explaining stock market anomalies.

Suggested Citation

  • Zhaobo Zhu & Licheng Sun & Jun Tu & Qiang Ji, 2022. "Oil price shocks and stock market anomalies," Post-Print hal-03712237, HAL.
    • Handle: RePEc:hal:journl:hal-03712237
    Note: View the original document on HAL open archive server: https://audencia.hal.science/hal-03712237
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    File URL: https://audencia.hal.science/hal-03712237/document
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    References listed on IDEAS

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    1. Nicholas Bloom, 2009. "The Impact of Uncertainty Shocks," Econometrica, Econometric Society, vol. 77(3), pages 623-685, May.
    2. Bali, Turan G. & Brown, Stephen J. & Tang, Yi, 2017. "Is economic uncertainty priced in the cross-section of stock returns?," Journal of Financial Economics, Elsevier, vol. 126(3), pages 471-489.
    3. Bali, Turan G. & Subrahmanyam, Avanidhar & Wen, Quan, 2021. "The Macroeconomic Uncertainty Premium in the Corporate Bond Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 56(5), pages 1653-1678, August.
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    Cited by:

    1. Liu, Feng & Xu, Jie & Ai, Chunrong, 2023. "Heterogeneous impacts of oil prices on China's stock market: Based on a new decomposition method," Energy, Elsevier, vol. 268(C).

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    More about this item

    Keywords

    Stock market anomalies; Oil supply shocks; Aggregate demand shocks; Oil specific shocks; Investor Sentiment;
    All these keywords.

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