The effect of oil price shocks on asset markets: Evidence from oil inventory news |
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| Authors: | Ron Alquist Reinhard Ellwanger Jianjian Jin |
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| Institution: | 1. Global Alternative Premia, AQR Capital Management LLC, Greenwich, Connecticut;2. International Economic Analysis, Bank of Canada, Ottawa, Ontario, Canada;3. Investment Strategy and Risk, British Columbia Investment Management Corporation, Victoria, British Columbia, Canada |
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| Abstract: | We quantify the reaction of U.S. equity, bond futures, and exchange rate returns to oil price shocks driven by oil inventory news. Across most sectors, equity prices decrease in response to higher oil prices before the 2007/2008 crisis but increase after it. Positive oil price shocks cause a depreciation of the U.S. dollar against a broad range of currencies but have only a modest effect on bond futures returns. The evidence suggests that changes in risk premia help to explain the time-varying effect of oil price shocks on U.S. equity returns. |
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| Keywords: | exchange rates interest rates news oil price shocks stock market returns |
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