The Effects of Oil Price Shocks on U.S. Stock Order Flow Imbalances and Stock Returns

26 Pages Posted: 5 Apr 2017

See all articles by Neophytos Lambertides

Neophytos Lambertides

Cyprus University of Technology

Christos S. Savva

Cyprus University of Technology - Department of Commerce, Finance and Shipping

Dimitris A. Tsouknidis

University of Piraeus - Department of Maritime Studies

Date Written: April 4, 2017

Abstract

This paper investigates for the first time the effects of oil demand shocks and oil supply shocks on stock order flow imbalances leading to changes in stock returns. Through the estimation of a structural VAR model, positive oil demand shocks are able to explain almost 36% of the observed variation in the daily average stock order flow imbalances measured by the buy/sell trades ratio; which consequently lead to a negative rather than positive stock returns reaction. In contrast, oil supply shocks exhibit a negative and marginally significant effect on stock order flow imbalances. Our aggregate analysis suggests that positive shocks on stock order flow imbalances are negatively related to stock returns. These effects are stronger for oil-related sectors when compared with the rest of the equities sectors.

Keywords: Oil price shocks, stock order flow imbalances, structural VAR

JEL Classification: G10, G12, G14, G15, G40

Suggested Citation

Lambertides, Neophytos and Savva, Christos S. and Tsouknidis, Dimitris A., The Effects of Oil Price Shocks on U.S. Stock Order Flow Imbalances and Stock Returns (April 4, 2017). Available at SSRN: https://ssrn.com/abstract=2945966 or http://dx.doi.org/10.2139/ssrn.2945966

Neophytos Lambertides

Cyprus University of Technology ( email )

Limassol, 3603
Cyprus

Christos S. Savva

Cyprus University of Technology - Department of Commerce, Finance and Shipping ( email )

Limassol, 3603
Cyprus
00357252349 (Phone)
00357252674 (Fax)

HOME PAGE: http://www.csavva.com

Dimitris A. Tsouknidis (Contact Author)

University of Piraeus - Department of Maritime Studies ( email )

80, Karaoli and Dimitriou str.
Piraeus, Attiki 18534
Greece

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