1. How does stock market volatility react to oil price shocks?
- Author
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Andrea Bastianin, Matteo Manera, Bastianin, A, and Manera, M
- Subjects
Economics and Econometrics ,Oil market ,Stock market volatility ,Realized variance ,020209 energy ,02 engineering and technology ,Monetary economics ,Realized Volatility, Oil Price Shocks, Oil Price, Stock Prices, Structural VAR ,SECS-P/05 - ECONOMETRIA ,Demand shock ,0202 electrical engineering, electronic engineering, information engineering ,Economics ,Stock market ,Oil price ,Volatility (finance) ,health care economics and organizations ,Aggregate demand - Abstract
We study the impact of oil price shocks on the U.S. stock market volatility. We jointly analyze three different structural oil market shocks (i.e., aggregate demand, oil supply, and oil-specific demand shocks) and stock market volatility using a structural vector autoregressive model. Identification is achieved by assuming that the price of crude oil reacts to stock market volatility only with delay. This implies that innovations to the price of crude oil are not strictly exogenous, but predetermined with respect to the stock market. We show that volatility responds significantly to oil price shocks caused by unexpected changes in aggregate and oil-specific demand, whereas the impact of supply-side shocks is negligible.
- Published
- 2018