Oil Price Shocks and Stock Market Returns: Evidence from Oil-Importing and Oil-Exporting Countries

48 Pages Posted: 15 Dec 2012

See all articles by Li Yang

Li Yang

UNSW Australia Business School, School of Banking and Finance; Financial Research Network (FIRN)

Chongfeng Wu

Shanghai Jiao Tong University (SJTU) - Aetna School of Management

Yudong Wang

Shanghai Jiao Tong University (SJTU)

Date Written: December 14, 2012

Abstract

While the relationship between oil prices and stock markets is of great interest to economists, previous studies do not differentiate oil-exporting countries from oil-importing countries when they investigate the effects of oil price shocks on stock market returns. In this paper, we address this limitation using a structural VAR analysis. Our main findings can be summarized as follows: First, the magnitude, duration, and even direction of response by stock market in a country to oil price shocks highly depend on whether the country is a net importer or exporter in the world oil market, and whether changes in oil price are driven by supply or aggregate demand. Second, the relative contribution of each type of oil price shocks depends on the level of importance of oil to national economy, as well as the net position in oil market and the driving forces of oil price changes. Third, the effects of aggregate demand uncertainty on stock markets in oil-exporting countries are much stronger and more persistent than in oil-importing countries. Finally, positive aggregate and precautionary demand shocks are shown to result in a higher degree of co-movement among the stock markets in oil-exporting countries, but not among those in oil-importing countries.

Keywords: Oil prices, Stock markets, Oil-importing and oil-exporting countries, Oil demand and supply shocks

JEL Classification: G12, G15, Q43

Suggested Citation

Yang, Li and Wu, Chongfeng and Wang, Yudong, Oil Price Shocks and Stock Market Returns: Evidence from Oil-Importing and Oil-Exporting Countries (December 14, 2012). Available at SSRN: https://ssrn.com/abstract=2189575 or http://dx.doi.org/10.2139/ssrn.2189575

Li Yang (Contact Author)

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia
+610293855857 (Phone)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Chongfeng Wu

Shanghai Jiao Tong University (SJTU) - Aetna School of Management ( email )

No.535 Fahuazhen Road
Shanghai, 200052
China

Yudong Wang

Shanghai Jiao Tong University (SJTU)

KoGuan Law School
Shanghai 200030, Shanghai 200052
China

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