OIL PRICE SHOCKS AND STOCK MARKET BOOMS IN AN OIL EXPORTING COUNTRY

ABSTRACT This paper analyses the effects of oil price shocks on stock returns in Norway, an oil‐exporting country, highlighting the transmission channels of oil prices for macroeconomic behaviour. To capture the interaction between the different variables, stock returns are incorporated into a struc...

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Bibliographic Details
Published in:Scottish journal of political economy 2009-05, Vol.56 (2), p.232-254
Main Author: Bjornland, Hilde C
Format: Article
Language:English
Subjects:
Economic Conditions
Economic shock
Export policy
Industrial economics
Norway
Oil extraction
Oil market
Oil price
Petroleum Industry
Price formation
Prices
Supply and Demand
Supply-side economics
Transmission mechanism
Vector-autoregressive models
Wealth
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Summary:ABSTRACT This paper analyses the effects of oil price shocks on stock returns in Norway, an oil‐exporting country, highlighting the transmission channels of oil prices for macroeconomic behaviour. To capture the interaction between the different variables, stock returns are incorporated into a structural VAR model. I find that following a 10% increase in oil prices, stock returns increase by 2.5%, after which the effect gradually dies out. The results are robust to different (linear and non‐linear) transformations of oil prices. The effects on the other variables are more modest. However, all variables indicate that the Norwegian economy responds to higher oil prices by increasing aggregate wealth and demand. The results also emphasize the role of other shocks; monetary policy shocks in particular, as important driving forces behind stock price variability in the short term.
ISSN:0036-9292
1467-9485
DOI:10.1111/j.1467-9485.2009.00482.x