The Impact of Oil Price Shocks on the Stock Market Return and Volatility Relationship

By Wensheng Kang, Ronald A. Ratti, Kyung Hwan Yoon. 2015

269 citations recorded by the source corpus.

This paper examines the impact of structural oil price shocks on the covariance of U.S. stock market return and stock market volatility. We construct from daily data on return and volatility the covariance of return and volatility at monthly frequency. The measures of daily volatility are realized-volatility at high frequency (normalized squared return), conditional-volatility recovered from a stochastic volatility model, and implied-volatility deduced from options prices. Positive shocks to aggregate demand and to oil-market specific demand are associated with negative effects on the covariance of return and volatility. Oil supply disruptions are associated with positive effects on the covariance of return and volatility. The spillover index between the structural oil price shocks and covariance of stock return and volatility is large and highly statistically significant.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/b06deb8831a5b8ccea4ac6ac5348eb449cf1e2c2

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Citations in the corpus

Oil Prices and Stock Markets: A Review of the Theory and Empirical Evidence (2018, methodology): “Kang et al. (2015a), as well as, Bastianin and Manera (2017) on the other hand, concentrate on the US market and find that both demand-side shocks (i.e. aggregate demand and precautionary demand shocks) lead to lower stock market volatility.”
Dynamics of China’s carbon prices in the pilot trading phase (2017, background): “Previous studies find a spillover effect between oil shock and stock market trends (Kang et al. , 2015; Maghyereh et al. , 2016; Andrada-Félixa, et al. , 2017).”
The role of news-based uncertainty indices in predicting oil markets: a hybrid nonparametric quantile causality method (2017, background): “In addition, Kang et al. (2015) reported empirical evidence revealing a strong dependence between oil prices and stock market volatility.”
Time-varying correlation between oil and stock market volatilities: Evidence from oil-importing and oil-exporting countries (2016, result): “This finding is in line with the studies by Hamilton (2009), Kilian and Park (2009), Apergis and Miller (2009), Baumeister and Peersman (2012), Wang et al. (2013) and Kang et al. (2015), among others, which suggest that different oil shocks trigger different responses from the stock markets.”
The impacts of oil price shocks on stock market volatility: Evidence from the G7 countries (2016, background): “reat was introduced by Kilian (2009) and is available on the author’s website.”
How oil prices, gold prices, uncertainty and risk impact Islamic and conventional stocks? Empirical evidence from QARDL technique (2020, background): “The reason behind mixed findings of the influence of oil prices on Islamic stocks might be due to the fact that too much evidence on the impact of oil prices on Islamic stock is captured from conventional markets (Kang et al., 2015; Lambertides et al., 2017).”
Asymmetric Impact of Oil Price Shock on Stock Market in China: A Combination Analysis Based on SVAR Model and NARDL Model (2017, background): “Additionally, Kang, Ratti, and Yoon (2015) found out that demandside shocks of oil price are negative effects on the covariance of return and volatility.”