Does oil move equity prices? A global view

Many studies indicate that oil price shocks have an adverse effect on real output and, hence, an adverse effect on corporate profits where oil is used as a key input. The present study examines whether and to what extent the adverse effect of oil price shocks impacts stock market returns. To this en...

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Bibliographic Details
Published in:Energy economics 2008-05, Vol.30 (3), p.986-997
Main Authors: Nandha, Mohan, Faff, Robert
Format: Article
Language:English
Subjects:
Applied sciences
Asset pricing
Asymmetry
Crude oil prices
Economic data
Economic theory
Energy
Energy economics
Energy market
Equity
Equity returns
Exact sciences and technology
Fossil fuels and derived products
General, economic and professional studies
Global industry sectors
Globalization
Impact analysis
Methodology. Modelling
Oil
Oil price
Rates of return
Securities markets
Studies
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Summary:Many studies indicate that oil price shocks have an adverse effect on real output and, hence, an adverse effect on corporate profits where oil is used as a key input. The present study examines whether and to what extent the adverse effect of oil price shocks impacts stock market returns. To this end we, analyse 35 DataStream global industry indices for the period from April 1983 to September 2005. Our findings indicate that oil price rises have a negative impact on equity returns for all sectors except mining, and oil and gas industries. Generally, these results are consistent with economic theory and evidence provided by previous empirical studies. Little evidence of any asymmetry is detected in the oil price sensitivities. In light of our findings, we recommend that international portfolio investors consider hedging oil price risk.
ISSN:0140-9883
1873-6181
DOI:10.1016/j.eneco.2007.09.003