The impact of oil price shocks on the stock market return and volatility relationship

Wensheng Kang, Ronald Ratti and Kyung Hwan Yoon ()

Journal of International Financial Markets, Institutions and Money, 2015, vol. 34, issue C, 41-54

Abstract: 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.

Keywords: Stock return and volatility; Oil price shocks; Stock volatility; Structural VAR (search for similar items in EconPapers)
JEL-codes: E44 G10 Q41 Q43 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (117)

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Related works:
Working Paper: The Impact of Oil Price Shocks on the Stock Market Return and Volatility Relationship (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:34:y:2015:i:c:p:41-54

DOI: 10.1016/j.intfin.2014.11.002

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