Oil price shocks and stock market returns: New evidence from the United States and China

David Clive Broadstock, George Filis

Research output: Journal article publicationJournal articleAcademic researchpeer-review

155 Citations (Scopus)

Abstract

This study examines the time-varying correlations between oil prices shocks of different types (supply-side, aggregate demand and oil-market specific demand as per Kilian (2009) who highlighted that "Not all oil shocks are alike") and stock market returns, using a Scalar-BEKK model. For this study we consider the aggregate stock market indices from two countries, China and the US, reflecting the most important developing and developed financial markets in the world. In addition to the whole market, we also consider correlations from key selected industrial sectors, namely Metals & Mining, Oil & Gas, Retail, Technology and Banking. The sample period runs from 1995 until 2013. We highlight several key points: (i) correlations between oil price shocks and stock returns are clearly and systematically time-varying; (ii) oil shocks of different types show substantial variation in their impact upon stock market returns; (iii) these effects differ widely across industrial sectors; and finally (iv) China is seemingly more resilient to oil price shocks than the US.
Original languageEnglish
Pages (from-to)417-433
Number of pages17
JournalJournal of International Financial Markets, Institutions and Money
Volume33
DOIs
Publication statusPublished - 1 Nov 2014
Externally publishedYes

Keywords

  • Chinese stock market
  • Industrial sectors
  • Oil price shocks
  • Scalar-BEKK
  • Time-varying correlation
  • US stock market

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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