Stock-Oil Comovement: Fundamentals or Financialization?

Fisher College of Business Working Paper No. 2022-03-08

Charles A. Dice Center Working Paper No. 2022-8

60 Pages Posted: 31 Aug 2022 Last revised: 17 Nov 2022

See all articles by Alessandro Melone

Alessandro Melone

Ohio State University (OSU) - Fisher College of Business

Otto Randl

Vienna University of Economics and Business

Leopold Sögner

Institute for Advanced Studies (IHS); Vienna Graduate School of Finance (VGSF)

Josef Zechner

Vienna University of Economics and Business

Date Written: November 16, 2022

Abstract

The return correlation between U.S. stocks and oil has shifted from negative to positive since 2008. We use a return decomposition framework to demonstrate that the underlying reason for this structural change is a shift in the correlation between cash flow news for the two assets. Intuitively, as the U.S. turned from an oil importer to a net exporter, the correlation between the cash flow news associated with oil and the U.S. stock market turned positive. Our findings help to understand the set of potential determinants of equity-commodity correlations and the diversification benefits of investing in commodities.

Keywords: Equity-Commodity Correlation, Oil Futures, Return Decomposition, Cash Flow News

JEL Classification: E44, G11, G12, Q43

Suggested Citation

Melone, Alessandro and Randl, Otto and Sögner, Leopold and Zechner, Josef, Stock-Oil Comovement: Fundamentals or Financialization? (November 16, 2022). Fisher College of Business Working Paper No. 2022-03-08, Charles A. Dice Center Working Paper No. 2022-8, Available at SSRN: https://ssrn.com/abstract=4205724 or http://dx.doi.org/10.2139/ssrn.4205724

Alessandro Melone (Contact Author)

Ohio State University (OSU) - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

Otto Randl

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Leopold Sögner

Institute for Advanced Studies (IHS) ( email )

Josefstädter Straße 39
1080 Vienna
Austria

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

Josef Zechner

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien A-1019
Austria

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
134
Abstract Views
446
Rank
322,824
PlumX Metrics