AI summary · arXiv: 1811.03820v1 · econ.EM
How does stock market volatility react to oil shocks?
The essentials
- Andrea Bastianin and Matteo Manera study the impact of oil price shocks on the U.S. stock market volatility.
- They use a structural vector autoregressive model to jointly analyze three different structural oil market shocks - aggregate demand, oil supply, and oil-specific demand shocks - and stock market volatility.
- To achieve identification, they assume that the price of crude oil reacts to stock market volatility only with delay.
- The authors find that volatility responds significantly to unexpected changes in aggregate and oil-specific demand-driven oil price shocks, while the impact of supply-side shocks is negligible.
- Their findings provide important insights for investors and policymakers who need to understand how changes in oil prices affect stock markets' stability.
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