Global Oil Market and the U.S. Stock Returns

35 Pages Posted: 18 Jan 2016

See all articles by Maryam Ahmadi

Maryam Ahmadi

Fondazione Eni Enrico Mattei

Matteo Manera

University of Milan-Bicocca, Italy - Department of Economics, Management and Statistics (DEMS); Fondazione Eni Enrico Mattei (FEEM), Milan, Italy

Mehdi Sadeghzadeh

Institute for management and planning studies (IMPS); University of Milan-Bicocca, Italy - Department of Economics, Management and Statistics (DEMS)

Date Written: October 26, 2015

Abstract

This paper provides an analysis of the link between the oil market and the U.S. stock market returns at the aggregate as well as industry levels. We empirically model oil price changes as driven by speculative demand shocks along with consumption demand and supply shocks in the oil market. We also take into account in our model all the factors that affect stock market price movements over and above the oil market, in order to quantify the pure effect of oil price shocks on returns. The results show that stock returns respond to oil price shocks differently, depending on the causes behind the shocks. Impulse response analysis suggests that consumption demand shocks are the most relevant drivers of the stock market return, relative to other oil market driven shocks. Industry level analysis is performed to control for the heterogeneity of the responses of returns to oil price changes. The results show that both cost side and demand side effects of oil price shocks matter for the responses of industries to oil price shocks. However, the main driver of the variation in industries' returns is the shock to aggregate stock market.

Keywords: Oil Market, Oil Price, Stock Market

JEL Classification: G1, G12, Q41

Suggested Citation

Ahmadi, Maryam and Manera, Matteo and Sadeghzadeh, Mehdi, Global Oil Market and the U.S. Stock Returns (October 26, 2015). FEEM Working Paper No. 91-2015, Available at SSRN: https://ssrn.com/abstract=2715967 or http://dx.doi.org/10.2139/ssrn.2715967

Maryam Ahmadi

Fondazione Eni Enrico Mattei ( email )

Corso Magenta, 63
Milan, MI
Italy

Matteo Manera (Contact Author)

University of Milan-Bicocca, Italy - Department of Economics, Management and Statistics (DEMS) ( email )

Via Bicocca degli Arcimboldi, 8
Milan, 20126
Italy
+39 02 6448 5819 (Phone)
+39 02 6448 5878 (Fax)

HOME PAGE: http://www.matteomanera.it

Fondazione Eni Enrico Mattei (FEEM), Milan, Italy ( email )

Corso Magenta, 63
Milan, 20123
Italy
+39 02 520 36944 (Phone)

HOME PAGE: http://www.feem.it

Mehdi Sadeghzadeh

Institute for management and planning studies (IMPS) ( email )

North Niavaran Street
Tehran
Iran

University of Milan-Bicocca, Italy - Department of Economics, Management and Statistics (DEMS) ( email )

Piazza dell’Ateneo Nuovo 1, 20126 Milano
Milano, 20126
Italy

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