Oil and Stock Price Returns: Evidence from European Industrial Sector Indices in a Time-Varying Environment

32 Pages Posted: 25 Oct 2018

See all articles by Stavros Antonios Degiannakis

Stavros Antonios Degiannakis

Department of Economic and Regional Development, Panteion University of Political and Social Sciences

George N. Filis

Bournemouth University

Christos Floros

Technological Educational Institute of Crete

Date Written: October 3, 2013

Abstract

The time-varying correlation between oil prices returns and European industrial sector indices returns, considering the origin of the oil price shock, is investigated. A time-varying multivariate heteroskedastic framework is employed to test the above hypothesis based on data from 10 European sectors. The contemporaneous correlations suggest that the relationship between sector indices and oil prices change over time and they are industry specific. In addition, the supply-side oil price shocks result in low to moderate positive correlation levels, the precautionary demand oil price shocks lead to almost zero correlation levels, whereas the aggregate demand oil price shocks generate significant changes in the correlation levels (either positive or negative). Both the origin of the oil price shock and the type of industry are important determinants of the correlation level between industrial sectors’ returns and oil prices. Prominent among the results is the fact that during the financial crisis of 2008 some sectors were providing diversification opportunities to investors dealing with the crude oil market.

Keywords: Diag-VECH GARCH, Dynamic correlation, Multivariate Heteroskedastic Framework, Oil Price Returns, Oil Price Shocks, Stock Market Sectors

JEL Classification: C32, C51, G1, Q4

Suggested Citation

Degiannakis, Stavros Antonios and Filis, George N. and Floros, Christos, Oil and Stock Price Returns: Evidence from European Industrial Sector Indices in a Time-Varying Environment (October 3, 2013). Available at SSRN: https://ssrn.com/abstract=3259763 or http://dx.doi.org/10.2139/ssrn.3259763

Stavros Antonios Degiannakis (Contact Author)

Department of Economic and Regional Development, Panteion University of Political and Social Sciences ( email )

136 Sygrou
Athens
Greece

George N. Filis

Bournemouth University ( email )

Fern Barrow
Poole BH12 5BB, Dorset BH8 8EB
United Kingdom

Christos Floros

Technological Educational Institute of Crete ( email )

Department of Accounting & Finance
School of Management & Economics
Heraklion, Crete GR 71004
Greece

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