Does Oil and Gold Price Uncertainty Matter for the Stock Market?

31 Pages Posted: 24 Nov 2015 Last revised: 29 Jul 2017

Dennis Bams

Maastricht University - Department of Finance; DLL

Gildas Blanchard

Maastricht University

Iman Honarvar

Robeco Asset Management

Thorsten Lehnert

University of Luxembourg

Date Written: July 5, 2017

Abstract

We proxy uncertainty in the stock, oil and gold markets with the variance risk premia, extracted from futures and option contracts. We observe that an independent increase in the stock, oil or gold markets uncertainty coincides with negative returns in different industries. However, only the stock market uncertainty is a systematic priced factor in the entire cross section of stocks' expected returns. The oil price uncertainty is a sector-specific factor, and due to the industry segmentation of the market, it is only priced within oil-relevant industries. Gold price uncertainty is an asset-specific factor that is neither priced across nor within industries.

Keywords: Uncertainty, Volatility Risk Premium, Stock Market, Oil, Gold, Oil-relevant Industry, Market Segmentation

JEL Classification: G10, G12, G13

Suggested Citation

Bams, Dennis and Blanchard, Gildas and Honarvar, Iman and Lehnert, Thorsten, Does Oil and Gold Price Uncertainty Matter for the Stock Market? (July 5, 2017). Journal of Empirical Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2692987 or http://dx.doi.org/10.2139/ssrn.2692987

Dennis Bams

Maastricht University - Department of Finance ( email )

Maastricht, 6200 MD
Netherlands

DLL ( email )

Eindhoven
Netherlands

Gildas Blanchard

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands

Iman Honarvar (Contact Author)

Robeco Asset Management ( email )

Rotterdam
Netherlands

Thorsten Lehnert

University of Luxembourg ( email )

6, rue Coudenhove-Kalergi
Luxembourg, L-1359
Luxembourg

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