Oil Prices and the Stock Market

Robert C. Ready

University of Rochester - Simon Business School

December 17, 2013

This paper develops and finds support for a novel method for classifying oil price changes as supply or demand driven. Demand shocks are identified as returns to an index of oil producing firms which are orthogonal to unexpected changes in the VIX index. Supply shocks are oil price changes which are orthogonal to demand shocks and changes in the VIX. Demand shocks are strongly positively correlated with market returns, while supply shocks have a strong negative correlation. The negative effects of supply shocks are concentrated in firms which produce consumer goods, and are also strongest for oil importing countries.

Number of Pages in PDF File: 52

Keywords: Oil Prices, Stock Returns, Supply and Demand

JEL Classification: J12, Q43

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Date posted: September 2, 2012 ; Last revised: December 20, 2013

Suggested Citation

Ready, Robert C., Oil Prices and the Stock Market (December 17, 2013). Available at SSRN: http://ssrn.com/abstract=2140034 or http://dx.doi.org/10.2139/ssrn.2140034

Contact Information

Robert C. Ready (Contact Author)
University of Rochester - Simon Business School ( email )
Rochester, NY 14627
United States
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