scholarly journals Has COVID-19 changed the stock return-oil price predictability pattern?

2021 ◽  
Vol 7 (1) ◽  
Author(s):  
Fan Zhang ◽  
Paresh Kumar Narayan ◽  
Neluka Devpura
Keyword(s):  
Financial Markets ◽  
Stock Returns ◽  
Empirical Model ◽  
Economic Activity ◽  
Stock Return ◽  
Oil Prices ◽  
Trading Strategies ◽  
Oil Price ◽  
Seasonal Effects ◽  
The Relationship

AbstractIn this paper, we examine if COVID-19 has impacted the relationship between oil prices and stock returns predictions using daily Japanese stock market data from 01/04/2020 to 03/17/2021. We make a novel contribution to the literature by testing whether the COVID-19 pandemic has changed this predictability relationship. Employing an empirical model that controls for seasonal effects, return-related control variables, heteroskedasticity, persistency, and endogeneity, we demonstrate that the influence of oil prices on stock returns declined by around 89.5% due to COVID-19. This implies that when COVID-19 reduced economic activity and destabilized financial markets, the influence of oil prices on stock returns declined. This finding could have implications for trading strategies that rely on oil prices.

scholarly journals Oil price effect on sectoral stock returns: A conditional covariance and correlation approach for Mexico

2020 ◽  
Vol 16 (1) ◽  
pp. 1-15
Author(s):  
Rodrigo A. Morales Fernández Rafaelly ◽  
Roberto J. Santillán-Salgado
Keyword(s):  
Stock Returns ◽  
Stock Exchange ◽  
Spillover Effect ◽  
Oil Prices ◽  
Oil Price ◽  
Price Effect ◽  
Stock Market Performance ◽  
Original Contribution ◽  
Bivariate Garch Model ◽  
The Relationship

This paper analyzes the relationship between the volatility of oil price and selected sectoral stock returns in Mexico (industrials, materials, financials and consumer discretionary) by implementing a Diagonal VECH-type bivariate GARCH model in order to estimate conditional covariances and correlations. The econometric results suggest that there exists a statistically significant relationship between sector indices, as well as between Mexico’s aggregate stock exchange returns, and variations in oil prices. Conditional correlations suggest that during most of the analyzed period, the relationship between oil price fluctuations and sectoral stock returns is positive. The recommendation, supported by these results, is that investors should take into consideration the interaction between the analyzed variables in order to generate more robust risk-hedge strategies. An important limitation for this work is information availability at sector level in the country. The original contribution of this paper lies mainly in the analysis of the influence of oil prices over sectoral indices of the Mexican Stock Exchange. These results provide more support to the current that suggests that a price increase in oil has a direct spillover effect on stock market performance.

scholarly journals Effect of Oil Prices Fluctuation on Stock Indices-Comparative Study

2021 ◽  
pp. 80-89
Author(s):  
Ahmed J. Al-Dahlaki ◽  
Ghadhanfer A. Hussein ◽  
Mohammed S. Ahmed
Keyword(s):  
New York ◽  
Saudi Arabia ◽  
Comparative Study ◽  
Financial Markets ◽  
Crude Oil ◽  
Oil Prices ◽  
Oil Price ◽  
Market Index ◽  
Stock Indices ◽  
The Relationship

The study aims to examine the nature of the relationship and the effect of oil price fluctuations on stock indices in the financial markets of exporting and importing countries. For achieving that, the price of Brent crude oil was chosen as an index from the stock markets in Saudi Arabia, Russia and Iraq as oilexporting countries. While the market index was chosen from the markets of New York, Shanghai and Nikkei as an oil importer. The study came out with a set of conclusions and recommendations. The most important is that the degree of response of stock indices to fluctuations in oil prices was greater in exporting countries than in importing countries.

scholarly journals REAL STOCK RETURNS, INFLATIONARY TRENDS AND REAL ACTIVITY: Evidence from Malaysia

2013 ◽  
Vol 4 (3) ◽  
pp. 327
Author(s):  
M. Shabri Abdul Majid
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Economic Activity ◽  
Stock Return ◽  
Positive Relationship ◽  
Positive Real ◽  
Real Activity ◽  
Fisher Hypothesis ◽  
The Relationship

This study explores the relationship between real stock returns and inflationary trends in the Malaysian economy. It attempts to test for the relationship between real stock return and inflation in light of Fisher hypothesis that asserts the independence of real stock return and inflation and Fama’s (1981) proxy effect framework which states that the negative real stock returns-inflation is indirectly explained by a negative real economic activity-inflation and a positive real stock returns-real economicactivity relationships. The finding shows that real stock returns are independent of inflationary trends in accordance with the Fisher hypothesis, which implies that the Malaysian stock market provides a good hedge against inflation. The Fama’s proxy hypothesis is then tested to check for the consistency of the relationships. The positive relationship between inflation and real economic activity and the positive relationship betweenreal stock returns and real economic activity that totally contradicts the Fama’s proxy hypothesis however are found, to some extent, be consistent with the explanation of conventional macroeconomic theories of the Philip’s curve.

scholarly journals The Role of CAPM and Oil Prices to Analyze the Firm’s Stock Return

2019 ◽  
Vol 11 (2) ◽  
pp. 39
Author(s):  
Muqaddas Khalid ◽  
Kaleem Khan ◽  
Hina Saleem
Keyword(s):  
Stock Returns ◽  
Stock Return ◽  
Oil Prices ◽  
Oil Price ◽  
Estimation Techniques ◽  
Listed Firms ◽  
Common Correlated Effects ◽  
Standard Error Estimation ◽  
Market Premium

This paper attempts to analyze the applicability of CAPM and the effect of oil prices on firm’s stock in case of Pakistan. To examine this research objective, we use the yearly data of 148 listed firms over the period of 2006 to 2015. We employ three different estimation techniques, panel correlated standard error estimation (PCSE), Driscoll and Kraay (DK) estimation and common correlated effects pooled (CCEP), to analyze the relationship between oil variables and firm’s stock return. Moreover, we further estimate the variables by using robust estimation techniques to validate the empirical results. The estimations report the inapplicable of market premium in case of Pakistani firms. However, the oil price and lagged oil prices provides the evidence of negative and statistically significance in textile, sugar, cement, chemical and engineering sectors. On contrary, the oil prices and lagged oil prices have positive and significant impact on stock return in transportation and energy sectors. In conclusion, it is difficult to escape the conclusion that oil price have higher influence on stock returns as compared to the market premium and nearly all the manufacturing sectors are inversely affected by the oil price rise.

scholarly journals INTRODUCTION TO OIL PRICE SHOCKS

2011 ◽  
Vol 15 (S3) ◽  
pp. 327-336 ◽  
Author(s):  
Apostolos Serletis ◽  
John Elder
Keyword(s):  
Economic Activity ◽  
Oil Prices ◽  
The United States ◽  
Oil Price ◽  
Oil Price Shocks ◽  
Price Shocks ◽  
Price Increases ◽  
Predictive Content ◽  
The Relationship ◽  
True Relationship

The relationship between the price of oil and the level of economic activity is a fundamental empirical issue in macroeconomics. Hamilton (1983) showed that oil prices had significant predictive content for real economic activity in the United States prior to 1972, whereas Hooker (1996) argued that the estimated linear relations between oil prices and economic activity appear much weaker after 1973. In the debate that followed, several authors suggested that the apparent weakening of the relationship between oil prices and economic activity is illusory, arguing that the true relationship between oil prices and real economic activity is asymmetric, with the correlation between oil price decreases and output significantly different from the correlation between oil price increases and output—see, for example, Mork (1989) and Hamilton (2003).

scholarly journals The Role of CAPM and Oil Prices to Analyze the Firm’s Stock Return

2019 ◽  
Vol 11 (3) ◽  
pp. 13
Author(s):  
Muqaddas Khalid ◽  
Samya Tahir ◽  
Mehreen Fatima
Keyword(s):  
Stock Returns ◽  
Stock Return ◽  
Oil Prices ◽  
Oil Price ◽  
Estimation Techniques ◽  
Listed Firms ◽  
Common Correlated Effects ◽  
Standard Error Estimation ◽  
Market Premium

This paper attempts to analyze the applicability of CAPM and the effect of oil prices on firm’s stock in case of Pakistan. To examine this research objective, we use the yearly data of 148 listed firms over the period of 2006 to 2015. We employ three different estimation techniques, panel correlated standard error estimation (PCSE), Driscoll and Kraay (DK) estimation and common correlated effects pooled (CCEP), to analyze the relationship between oil variables and firm’s stock return. Moreover, we further estimate the variables by using robust estimation techniques to validate the empirical results. The estimations report the inapplicable of market premium in case of Pakistani firms. However, the oil price and lagged oil prices provides the evidence of negative and statistically significance in textile, sugar, cement, chemical and engineering sectors. On contrary, the oil prices and lagged oil prices have positive and significant impact on stock return in transportation and energy sectors. In conclusion, it is difficult to escape the conclusion that oil price has higher influence on stock returns as compared to the market premium and nearly all the manufacturing sectors are inversely affected by the oil price rise.

scholarly journals OIL PRICES MOVEMENTS AND INDUSTRY STOCK RETURNS: EVIDENCE FROM PAKISTAN STOCK EXCHANGE (PSX)

2021 ◽  
Vol 37 (01) ◽  
pp. 84-96
Author(s):  
Muhammad Asif ◽  
Sharif Ullah Jan ◽  
Shahid Iqbal
Keyword(s):  
Stock Returns ◽  
Stock Exchange ◽  
Oil Prices ◽  
Oil Price ◽  
Price Movement ◽  
Future Studies ◽  
Listed Firms ◽  
Economic Recessions ◽  
The Impact ◽  
The Relationship

The recent financial and economic recessions have chiefly increased the importance of risk management and forecasting for business firms. Capital markets being the main pillar of economy are affected the most in such circumstances. The current study has attempted to investigate the impact of oil prices on the returns and volatility of Pakistani listed firms using the GARCH (1,1) model. Furthermore, this relationship has been investigated by categorizing the existing sectors of the Pakistan Stock Exchange (PSX) into oil producers, oil users, and oil substitutes for the period from January 2015 to December 2019. The findings of the study highlighted some strong evidence regarding the oil price movement and the firms’ returns across these sectors. Interestingly, firms’ returns behave differently about the magnitude of significance and direction of symbols based on their nature of the industry. Therefore, it is suggested for future studies to consider the nature of the sector of oil while exploring the relationship between oil prices and stock returns.

150 YEARS OF THE OIL PRICE–MACROECONOMY RELATIONSHIP

2017 ◽  
Vol 23 (3) ◽  
pp. 1302-1311 ◽  
Author(s):  
Apostolos Serletis ◽  
Elaheh Asadi Mehmandosti
Keyword(s):  
Economic Activity ◽  
Oil Prices ◽  
The United States ◽  
Output Growth ◽  
Oil Price ◽  
Real Output ◽  
Price Shocks ◽  
Real Price ◽  
The Relationship ◽  
Autoregressive Conditional Heteroscedasticity

We use the longest span data that have ever been studied before (from 1870 to 2014) to investigate the relationship between the price of oil and the level of economic activity in the United States. In the context of a bivariate (identified) structural generalized autoregressive conditional heteroscedasticity (GARCH)-in-Mean VAR in real output growth and the change in the real price of oil, we find that uncertainty about oil prices has had a negative and significant effect on real output. We also find that the responses of real output growth to positive and negative shocks are not very informative of whether they are symmetric or asymmetric, and that accounting for oil price uncertainty tends to amplify the negative dynamic response of real output growth to unfavorable (positive) oil price shocks.

Exploring the inflationary effect of oil price in the US

2019 ◽  
Vol 13 (1) ◽  
pp. 60-76 ◽  
Author(s):  
Amine Lahiani
Keyword(s):  
Growth Rate ◽  
Structural Breaks ◽  
Oil Prices ◽  
Oil Price ◽  
Inflation Expectations ◽  
Oil Price Shocks ◽  
Price Shocks ◽  
Content Type ◽  
The Us ◽  
The Relationship

PurposeThe purpose of this paper is to explore the effect of oil price shocks on the US Consumer Price Index over the monthly period from 1876:01 to 2014:04.Design/methodology/approachThe author uses the Bai and Perron (2003) structural break test to split the data sample into sub-periods delimited by the computed break dates. Afterwards, the author uses the quantile treatment effects over the full sample and then, by including sub-periods dummies to accommodate the selected structural breaks that drive the relationship between inflation and oil price growth.FindingsThe findings include a decreased transmission effect of oil price changes on inflation in recent years; a varied elasticity of inflation to the growth rate of oil prices across the distribution; and, finally, evidence of asymmetry in the relationship between the growth rate of oil prices and inflation, with a higher transmission mechanism for decreasing rather than increasing oil prices.Practical implicationsPolicymakers should remain alert to monitoring potential inflation increases and should take precautionary measures to anchor inflation expectations, because inflation reacts differently to positive and negative oil price shocks. Moreover, authorities should consider the asymmetric reaction of inflation to oil price shocks to adopt an appropriate monetary policy strategy to achieve the price stability target.Originality/valueThe paper used a quantile regression model with structural breaks, which has not yet been used in the literature.

scholarly journals Oil Market Shocks and Financial Instability in Asian Countries

2021 ◽  
Author(s):  
Fakhri Hasanov
Keyword(s):  
Stock Market ◽  
Financial Markets ◽  
Oil Prices ◽  
Financial Instability ◽  
Asian Countries ◽  
Fair Share ◽  
Economic Variables ◽  
Oil Market ◽  
Market Shocks ◽  
The Relationship

There is no commodity whose interlinkages with the macroeconomy have been studied as extensively as oil, starting with Hamilton’s (1983) seminal study. Thousands of subsequent studies have examined the relationship between oil prices and various economic variables, including the stock market. This strand of the literature began with the pioneering work of Kling (1985). Since then, other financial markets, such as banking, have also received a fair share of analysis.

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