Oil and the Stock Markets
J. OF FINANCE, Vol. 51 No. 2, June 1996
Posted: 10 Oct 1996
We test whether the reaction of international stock markets to oil shocks can be justified by current and future changes in real cash flows and/or changes in expected returns. We find that in the post-war period the reaction of U.S. and Canadian stock prices to oil shocks can be completely accounted for by the impact of these shocks on real cash flows alone. In contrast, in both the U.K. and Japan innovations in oil prices appear to cause larger changes in stock prices than can be justified by subsequent changes in real cash flows or by changing expected returns.
JEL Classification: G15
Suggested Citation: Suggested Citation