Oil shocks and equity returns during bull and bear markets: The case of oil importing and exporting nations. (March 2022)

• Record Type: Journal Article
• Authors: Ziadat, Salem Adel; McMillan, David G.; Herbst, Patrick
• Is Part Of: Resources policy. Volume 75(2022)
• Publication Date: 2022-03
• Subjects: Stock returns -- Oil shocks -- Quantile regression -- Oil-importers/exporters; C22 -- G12; Mines and mineral resources -- Periodicals; Ressources minérales -- Périodiques; Ressources naturelles -- Gestion -- Périodiques; Environnement -- Politique gouvernementale -- Périodiques; 333.8
• DOI: 10.1016/j.resourpol.2021.102461
• Languages: English
• ISSNs: 0301-4207

Abstract

Abstract: This paper examines the impact of oil price shocks on global equities. The focus is on the heterogeneity of responses to stocks depending on three characteristics: the type of the shock; whether the country is an oil importer/exporter; the bull/bear state of the stock market. We utilise the Kilian (2009) structural VAR to distil the oil price shocks and regress stock returns on these oil shocks using a quantile regression. In addition to oil price shocks, we consider the role of both economic policy uncertainty and stock market volatility. The results reveal that equity markets in oil-importing economies do not exhibit specific patterns in response to oil shocks, whereas those in oil-exporting economies are affected by precautionary oil demand shocks. Across these markets, precautionary demand shocks have a positive effect on stock markets, although for the GCC nations it predominantly impacts only during bear markets. Highlights: We examine oil shocks on the stock markets of importer and exporter countries. We consider this across market phases in a quantile regression. Results reveal that oil-importing markets are not affected by oil shocks. Oil-exporting markets are affected by precautionary oil demand shocks. GCC markets are predominantly affected during bear markets.