Skip to main content
SpringerLink
Log in

A VAR Approach to the Analysis of the Relationship between Oil Prices and Industry Equity Returns

  • Chapter
Bank Performance, Risk and Securitization

  • 599 Accesses

Abstract

Oil-related issues repeatedly dominate international news and economic policy discussions, especially as the price of this commodity escalates. Episodes occur with apparent regularity which create supply and demand uncertainty in the oil market, and as a consequence tend to affect its price. The major events since 1970s can be tentatively summarized as the formation of the Organization of Petroleum Exporting Countries (OPEC), major conflicts in oil-exporting regions, and the recent emergence of accelerated growth in developing economies.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 84.99
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 109.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 109.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  • Apergis, N., Miller, S. M., 2009. Do structural oil-market shocks affect stock prices? Energy Economics, 31(4), pp. 569–575.

    Article  Google Scholar 

  • Arouri, M. E. H., 2011. Does crude oil move stock markets in Europe? A sector investigation. Economic Modelling, 28(4), pp. 1716–1725.

    Article  Google Scholar 

  • Arouri, M. E. H., Nguyen, D. K., 2010. Oil prices, stock markets and portfolio investment: Evidence from sector analysis in Europe over the last decade. Energy Policy, 38(8), pp. 4528–4539.

    Article  Google Scholar 

  • Baca, S. P., Garbe, B. L., Weiss, R. A., 2000. The rise of sector effects in major equity markets. Financial Analysts Journal, 56(5), pp. 34–40.

    Article  Google Scholar 

  • Basher, S. A., Sadorsky, P., 2006. Oil price risk and emerging stock markets. Global Finance Journal, 17(2), pp. 224–251.

    Article  Google Scholar 

  • Bohi, D. R., 1991. On the macroeconomic effects of energy price shocks. Resources and Energy, 13(2), pp. 145–162.

    Article  Google Scholar 

  • Brennan, M. J., Jegadeesh, N., Swaminathan, B., 1993. Investment analysis and the adjustment of stock prices to common information. Review of Financial Studies, 6(4), pp. 799–824.

    Article  Google Scholar 

  • Brooks, C., 2008. Introductory econometrics for finance. 2nd ed. Cambridge: Cambridge University Press.

    Book  Google Scholar 

  • Brown, S. P. A., Yücel, M. K., 2002. Energy prices and aggregate economic activity: an interpretive survey. Quarterly Review of Economics and Finance, 42(2), pp. 193–208.

    Article  Google Scholar 

  • Chen, N. F., Roll, R., Ross, S. A., 1986. Economic forces and the stock market. Journal of Business, 59(3), pp. 383–403.

    Article  Google Scholar 

  • Clare, A. D., Thomas, S. H., 1994. Macroeconomic factors, the APT and the UK stock market. Journal of Business Finance & Accounting, 21(3), pp. 309–330.

    Article  Google Scholar 

  • Cochrane, J. H., 2005. Asset pricing. Revised edition. Princeton: Princeton University Press.

    Google Scholar 

  • Cong R. G., Wei Y. M., Jiao J. L., Fan Y., 2008. Relationships between oil price shocks and stock market: An empirical analysis from China. Energy Policy, 36(9), pp. 3544–3553.

    Article  Google Scholar 

  • Copeland, T. E., Weston, J. F., Shastri, K., 2005. Financial theory and corporate policy. 4th international ed. New York: Pearson Addison Wesley.

    Google Scholar 

  • Dennis, P., Mayhew, S., Stivers, C., 2006. Stock returns, implied volatility innovations, and the asymmetric volatility phenomenon. Journal of Financial and Quantitative Analysis, 41(2), pp. 381–406.

    Article  Google Scholar 

  • El-Sharif, I., Brown, D., Burton, B., Nixon, B., Russell, A., 2005. Evidence on the nature and extent of the relationship between oil prices and equity values in the UK. Energy Economics, 27(6), pp. 819–830.

    Article  Google Scholar 

  • Faff, R. W., Brailsford, T. J., 1999. Oil price risk and the Australian stock market. Journal of Energy Finance and Development, 4(1), pp. 69–87.

    Article  Google Scholar 

  • Fama, E. F., 1970. Efficient capital markets: A review of theory and empirical work. The Journal of Finance, 25(2), pp. 383–417.

    Article  Google Scholar 

  • Fama, E. F., 1981. Stock returns, real activity, inflation, and money. The American Economic Review, 71(4), pp. 545–565.

    Google Scholar 

  • Fama, E. F., French, K. R., 1993. Common risk factors in the returns on stocks and bonds. Journal of Financial Economics, 33(1), pp. 3–56.

    Article  Google Scholar 

  • Fama, E. F., French, K. R., 1997. Industry costs of equity. Journal of Financial Economics, 43(2), pp. 153–193.

    Article  Google Scholar 

  • Fama, E. F., Schwert, G. W., 1977. Asset returns and inflation. Journal of Financial Economics, 5(2), pp. 115–146.

    Article  Google Scholar 

  • Fayyad, A., Daly, K., 2011. The impact of oil price shocks on stock market returns: Comparing GCC countries with the UK and USA. Emerging Markets Review, 12(1), pp. 61–78.

    Article  Google Scholar 

  • Ferderer, J., 1996. Oil price volatility and the macroeconomy. Journal of Macroeconomics, 18(1), pp. 1–26.

    Article  Google Scholar 

  • Ferson, W. E., Harvey, C. R., 1993. The risk and predictability of international equity returns. The Review of Financial Studies, 6(3), pp. 527–566.

    Article  Google Scholar 

  • Hamilton, J. D., 1983. Oil price and the macroeconomy since world war II. Journal of Political Economy, 91(2), pp. 228–248.

    Article  Google Scholar 

  • Hamilton, J. D., 2003. What is an oil shock? Journal of Econometrics, 113(2), pp. 363–398.

    Article  Google Scholar 

  • Hamilton, J. D., 2008. Oil and the Macroeconomy. In The New Palgrave Dictionary of Economics, 2nd ed., eds. Durlauf, S., Blume, L. New York: Palgrave Macmillan.

    Google Scholar 

  • Hou, K., 2007. Industry information diffusion and the lead-lag effect in stock returns. The Review of Financial Studies, 20(4), pp. 1113–1138.

    Article  Google Scholar 

  • Huang, R. D., Masulis, R. W., Stoll, H. R., 1996. Energy shocks and financial markets. Journal of Futures Markets, 16(1), pp. 1–27.

    Article  Google Scholar 

  • International Monetary Fund International Financial Statistics: IMF. International Financial Statistics [online]. Washington, DC: IMF [Producer and Distributor], June 2011.

    Google Scholar 

  • Jones, C. M., Kaul, G., 1996. Oil and the stock markets. Journal of Finance, 51(2), pp. 463–491.

    Article  Google Scholar 

  • Kilian, L., 2009. Not all oil price shocks are alike: Disentangling demand and supply shocks in the crude oil market. American Economic Review, 99(3), pp. 1053–1069.

    Article  Google Scholar 

  • Kilian, L., Park, C., 2009. The impact of oil price shocks on the U.S. stock market. International Economic Review, 50(4), pp. 1267–1287.

    Article  Google Scholar 

  • Kling, J. L., 1985. Oil price shocks and stock market behavior. Journal of Portfolio Management, 12(1), pp. 34–39.

    Article  Google Scholar 

  • Lo, A. W., MacKinlay A. C., 1990. When are contrarian profits due to stock market overreaction? Review of Financial Studies, 3(2), pp. 175–205.

    Article  Google Scholar 

  • Lütkepohl, H., (2005). New Introduction to Multiple Time Series Analysis. Berlin: Springer.

    Book  Google Scholar 

  • Malik, F., Ewing, B. T., 2009. Volatility transmission between oil prices and equity sector returns. International Review of Financial Analysis, 18(3), pp. 95–100.

    Article  Google Scholar 

  • Mork, K. A., 1989. Oil and the macroeconomy when prices go up and down: An extension of Hamilton’s results. Journal of Political Economy, 97(3), pp. 740–744.

    Article  Google Scholar 

  • Mork, K. A., 1994. Business cycles and the oil market. Energy Journal 15 (special issue), pp. 15–38.

    Google Scholar 

  • Mork, K. A., Olsen, O., Mysen, H. T., 1994. Macroeconomic responses to oil price increases and decreases in seven OECD countries. Energy Journal, 15(4), pp. 19–36.

    Google Scholar 

  • Nandha, M., Faff, R., 2008. Does oil move equity prices? A global view. Energy Economics, 30(3), pp. 986–997.

    Article  Google Scholar 

  • OECD.StatExtracts. 2011. Key Short-Term Economic Indicators. Available from: http://stats.oecd.org/Index.aspx [Accessed 8 July 2011].

  • Papapetrou, E., 2001. Oil price shocks, stock market, economic activity and employment in Greece. Energy Economics, 23(5), pp. 511–532.

    Article  Google Scholar 

  • Park, J., Ratti, R. A., 2008. Oil price shocks and stock markets in the U.S. and 13 European countries. Energy Economics, 30(5), pp. 2587–2608.

    Article  Google Scholar 

  • Pindyck, R. S., Rubinfeld, D. L., 1998. Econometric models and economic forecasts. 4th ed. New York: MacGraw-Hill.

    Google Scholar 

  • Rasche, R. H., Tatom, J. A., 1977. The effects of the new energy regime on economic capacity, production, and prices. Federal Reserve Bank of St. Louis Review, 59(6), pp. 2–12.

    Google Scholar 

  • Sadorsky, P., 1999. Oil price shocks and stock market activity. Energy Economics, 21(5), pp. 449–469.

    Article  Google Scholar 

  • Sadorsky, P., 2004. Stock markets and energy prices. Encyclopaedia of Energy, 5, pp. 707–717. New York: Elsevier.

    Chapter  Google Scholar 

  • Sims, C. A., 1980. Macroeconomics and reality. Econometrica, 48(1), pp. 1–48.

    Article  Google Scholar 

  • Stock, J. H., Watson M. W., 2001. Vector autoregressions. Journal of Economic Perspectives, 15(4), pp. 101–115.

    Article  Google Scholar 

  • Thomson Datastream, Equity indices, accessed June 2011.

    Google Scholar 

  • Thomson Reuters, 2008. Datastream global equity indices User Guide Issue 5 [online]. Available from: http://thomsonreuters.com/content/financial/pdf/i_and_a/indices/datastream_global_equity_manual.pdf [Accessed 11 July 2011].

Download references

Author information

Authors and Affiliations

  1. Department of Banking and Finance, and the Dean of the Faculty of Economics, Management and Accountancy, University of Malta, Malta

    Joseph Falzon (Head)

  2. University of Malta, Malta

    Daniel Castillo M.Sc.

  3. University of Bath, UK

    Daniel Castillo M.Sc.

Authors
  1. Joseph Falzon
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Daniel Castillo M.Sc.
    View author publications

    You can also search for this author in PubMed Google Scholar

Editor information

Editors and Affiliations

  1. University of Malta, Malta

    Joseph Falzon (Faculty of Economics, Management and Accountancy) (Faculty of Economics, Management and Accountancy)

Copyright information

© 2013 Joseph Falzon and Daniel Castillo

About this chapter

Cite this chapter

Falzon, J., Castillo, D. (2013). A VAR Approach to the Analysis of the Relationship between Oil Prices and Industry Equity Returns. In: Falzon, J. (eds) Bank Performance, Risk and Securitization. Palgrave Macmillan Studies in Banking and Financial Institutions. Palgrave Macmillan, London. https://doi.org/10.1057/9781137332097_11

Download citation

Publish with us

Policies and ethics

Search

Navigation