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Oil Price Shocks and the Stock Market: Evidence from Japan

Abhay Abhyankar, Bing Xu, and Jiayue Wang

Year: 2013
Volume: Volume 34
Number: Number 2
DOI: 10.5547/01956574.34.2.7
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Abstract:
We study, using a structural vector autoregressive (SVAR) model, the relationship between oil price shocks and the Japanese stock market. We find that oil price shocks that arise from changes in aggregate global demand are positively correlated to returns on the Japanese stock market. Thus, in contrast to the conventional wisdom, a rise in oil price is not always bad news for the Japanese stock market. On the other hand, the Japanese stock market reacts negatively to oil price increases related to oil-market specific demand shocks. Finally, different from prior research using U.S. stock market data, we find that supply and demand shocks in the global crude oil market affect returns to the Japanese stock market index through changes to expected real cash flows rather than to changes to expected returns.



Oil Prices and Stock Markets: A Review of the Theory and Empirical Evidence

Stavros Degiannakis, George Filis, and Vipin Arora

Year: 2018
Volume: Volume 39
Number: Number 5
DOI: 10.5547/01956574.39.5.sdeg
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Abstract:
Do oil prices and stock markets move in tandem or in opposite directions? The complex and time varying relationship between oil prices and stock markets has caught the attention of the financial press, investors, policymakers, researchers, and the general public in recent years. In light of such attention, this paper reviews research on the oil price and stock market relationship. The majority of papers we survey study the impacts of oil markets on stock markets, whereas, little research in the reverse direction exists. Our review finds that the causal effects between oil and stock markets depend heavily on whether research is performed using aggregate stock market indices, sectorial indices, or firm-level data and whether stock markets operate in net oil-importing or net oil-exporting countries. Additionally, conclusions vary depending on whether studies use symmetric or asymmetric changes in the price of oil, or whether they focus on unexpected changes in oil prices. Finally, we find that most studies show oil price volatility transmits to stock market volatility, and that including measures of stock market performance improves forecasts of oil prices and oil price volatility. Several important avenues for further research are identified.Keywords: Oil prices, oil price volatility, stock markets, interconnectedness, forecasting, oil-importers, oil-exporters



An Empirical Analysis of the Relationships between Crude Oil, Gold and Stock Markets

Semei Coronado, Rebeca Jiménez-Rodrguez, and Omar Rojas

Year: 2018
Volume: Volume 39
Number: Special Issue 1
DOI: 10.5547/01956574.39.SI1.scor
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Abstract:
Oil and gold are used as investment assets and so they are closely related to the evolution of stock market indices, given that any influence on decisions about investment portfolios can affect stock market returns. Consequently, it is important for investors to analyze the direction of influence between crude oil, gold and stock markets when designing and implementing their investment strategies. Thus, this paper studies the direction of the causality among the three markets for the US case. In doing so, we apply linear and non-linear Granger causality tests for daily data from the Great Moderation onwards. Evidence is provided as to the importance of considering the possibility of nonlinear relationships between the three markets, a feature which cannot be revealed using conventional linear causality tests which would therefore lead to an information loss about the true link. The results for the full sample indicate that the causality goes in all directions, which implies that changes in the stock market returns may be monitored by observing changes in the returns of the two commodity markets considered (and vice versa). This may help to design substitution investment strategies. The results also indicate that the direction of influence between markets does not exhibit material differences between various subsamples, with the exception of the causality relationship between the two commodity markets. This may in part help explain the contradictory results and mixed conclusions found in previous related literature.



Socially Responsible Investment and Market Performance: The Case of Energy and Resource Companies

Janusz Brzeszczynski, Binam Ghimire, Tooraj Jamasb, and Graham McIntosh

Year: 2019
Volume: Volume 40
Number: Number 5
DOI: 10.5547/01956574.40.5.jbrz
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Abstract:
Do financial markets reward the energy and resource companies for adopting socially responsible practices? In this study, we investigate the stock market performance of major international energy and resource firms, classified within the socially responsible investment (SRI) category, from 2005 to 2016. We simulate investments in the portfolios of the SRI energy and resource companies stocks during this 11-year period and we further assess their risk-adjusted performance. The returns of the energy and resource SRI portfolio as a whole were neither consistently superior nor inferior to those of the benchmark indices. However, there exist substantial differences across the individual sub-sectors. The overall results show that markets do not reward or penalize the energy and resource firms for their SRI attitudes. We also find that the crude oil price consistently had a significant influence on the stock returns of the SRI energy and resource companies.



The (time-varying) Importance of Oil Prices to U.S. Stock Returns: A Tale of Two Beauty-Contests

David C. Broadstock and George Filis

Year: 2020
Volume: Volume 41
Number: Number 6
DOI: 10.5547/01956574.41.6.dbro
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Abstract:
We evaluate the probability that oil prices affect excess stock returns for U.S. listed firms. The probabilities are obtained from a time-varying multi-factor asset pricing framework estimated using dynamic model averaging techniques, including oil price information among several other possible risk factors. Two widely used oil price measures are considered, one based on raw oil price changes and another based on disentangling the source of oil price changes due to supply-side or demand-side effects. As far as we know our dataset, which comprises 10,118 stock price series with up to 25,372,588 observations between 1995�2018, is the most comprehensive used for this purpose. We develop two �beauty-contests� in which we estimate the multi-factor models separately for individual stocks, for each of the two oil price measures. The results suggests that, when working with daily data (beauty contest 1), oil price changes are a significant (important) determinant for around 1�3% of the sample. When using oil price shocks�as opposed to oil price changes�(beauty contest 2) this percentage increases to 27�45%, suggesting that oil supply and demand shocks (as opposed to oil price changes) can better explain firm-level excess returns, at least for monthly frequency data where such a decomposition is available. We provide evidence that the increase in percentage is only partially attributable to data-frequency, and more likely attributed to the decomposition into supply/demand driven oil price changes. We reconcile differences between our findings and those reported in previous literature on the basis of the fully dynamic nature of our adopted methodology.





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