Oil price shocks and American depositary receipt stock returns

In this paper we examine the impact of oil price shocks on twelve countries American Depositary Receipt (ADR) returns using monthly data from 1999.01 to 2014.12. The results show that oil price shocks have a positive and statistically significant impact on ADR return in all twelve countries. These results are robust to the inclusion of other explanatory variables such as oil price volatility and the spillover of the United States stock market. Further analysis shows that this effect is stronger in the post financial crisis time period compared to the pre-financial crisis time period.     

Crude oil shocks and African stock markets

In this paper, we investigate the impact of crude oil shocks on selected African stock markets using a Structural Vector Autoregressive model and a two-state regime smooth transition regression framework on monthly data from January 2000 to July 2018. The study is timely given the fast-growing energy sector and stock markets in Africa as well as the place of Africa in international trade. Selected markets are classified into oil-exporting (Nigeria, Tunisia, and Egypt) and oil-importing (Botswana, South Africa, Kenya, and Mauritius). The key findings are as follows: global demand shock does not really matter in oil-importing countries; there is little evidence that oil supply shock affects the real stock return for oil-exporting and oil-importing countries; oil-specific shock is significant for most countries investigated; negative price shocks have more impact than positive price shocks. The findings from this study have important implications for investors whose portfolios may comprise of assets from African stock markets and crude oil. Given the importance of oil in the global market, one would typically avoid equities that suffer from its shock. This study provides the indicators to inform that decision.     

Oil price and reserve location—Effects on oil and gas sector returns

We provide market evidence of the effects of reserve location on oil and gas (O&G) company returns. Prior studies have shown that commodity sector stock returns are affected by commodity prices. In a new contribution to natural resource valuation literature, returns for 51 O&G companies are shown to be directly and negatively affected by exposures to (location specific) progressive fiscal terms. We add a reserve location proxy—‘R’—to the Fama–French framework; differentiating between companies' performances based on the proportion of oilfield assets subject to progressive tax terms. Companies with oilfield assets owned under progressive production sharing fiscal terms are unable to capture the benefits of oil price increases—and as result significantly under-perform companies with concession asset holdings.     

The effects of oil price shocks on U.S. stock order flow imbalances and stock returns

This paper investigates for the first time the effects of oil demand shocks and oil supply shocks on stock order flow imbalances leading to changes in stock returns. Through the estimation of a structural VAR model, positive oil demand shocks are able to explain almost 36% of the observed variation in the daily average stock order flow imbalances measured by the buy/sell trades ratio; which consequently lead to a negative rather than positive stock returns reaction. In contrast, oil supply shocks exhibit a negative and marginally significant effect on stock order flow imbalances. Our aggregate analysis suggests that positive shocks on stock order flow imbalances are negatively related to stock returns. These effects are stronger for oil-related sectors when compared with the rest of the equities sectors.     

Time-varying impacts of demand and supply oil shocks on correlations between crude oil prices and stock markets indices

This paper investigates the time-varying impacts of demand and supply oil shocks on correlations between changes in crude oil prices and stock markets returns. The findings, obtained by means of a DCC-GARCH from June 2006 to June 2016, indicate that demand shocks positively affected the correlations between crude oil prices and stock market returns from late 2007 to mid-2008, during the apex of the financial markets volatility; from early 2009 to mid-2013, during global economy recovery from the financial crisis; and after 2015, when uncertainties about the Chinese growth and the US economy upturning arose. The dynamic conditional correlation, obtained after the removal of demand shocks effects, presented an average value of 0.13 when all economy sectors were considered and of 0.03 when the energy sector returns were excluded from the stock index. These correlations, still positive on average, suggest that exogenous supply oil shocks had little impact on US mainly enterprises cash flows over the last 10 years. Exceptions are the periods from 2006 to financial crisis and from 2014 until April 2016, when significant and unpredicted changes in oil market happened, considerably affecting the value of the main US companies.     

Option prices and stock market momentum: evidence from China

Option prices tend to be correlated to past stock market returns due to market imperfections. We unprecedentedly examine this issue on the SSE 50 ETF option in the Chinese derivatives market. To measure the price pressure in the options market, we construct an implied volatility spread based on pairs of the SSE 50 ETF option with identical expiration dates and strike prices. By regressing the implied volatility spread on past stock returns, we find that past stock returns exert a strong influence on the pricing of index options. Specifically, we find that SSE 50 ETF calls are significantly overvalued relative to SSE 50 ETF puts after stock price increases and the reverse is also true after the stock price decreases. Moreover, we validate the momentum effects in the underlying stock market to be responsible for the price pressure. These findings are both economically and statistically significant and have important implications.     

Oil shocks and stock market volatility of the BRICS: A GARCH-MIDAS approach

In this study, we employ the GARCH–MIDAS (Generalised Autoregressive Conditional Heteroskedasticity variant of Mixed Data Sampling) model to investigate the response of stock market volatility of the BRICS group of countries (Brazil, Russia, India, China, and South Africa) to oil shocks. We utilise the recent datasets of Baumeister & Hamilton (2019), where oil shocks are decomposed into four variants: oil supply shocks, economic activity shocks, oil consumption shocks, and oil inventory shocks. We further decompose each of these shocks into positive and negative shocks, and our findings show heterogeneous response of stock market volatility of the BRICS countries to the alternative oil shocks, including positive and negative shocks. The differing responses across the BRICS countries could be attributed to differences in the economic size, oil production, and consumption profile of the countries, market share distribution across firms, and financial system and regulation efficiency.     

Oil price shocks and volatility spillovers in the Nigerian sovereign bond market

This paper investigates volatility spillover in the Nigerian sovereign bond market arising from oil price shocks, using Vector Autoregressive Moving Average ‐ Asymmetric Generalized Autoregressive Conditional Heteroscedasticity (VARMA‐AGARCH) model. The paper covers the period March 22, 2011 to April 14, 2016 and makes use of the daily data of the Nigerian Sovereign Bond, Brent oil and West Texas Intermediate (WTI), respectively. We endogenously and sequentially detect structural break points using the test of Bai and Perron (2003) framework. In order to accurately estimate the model, we modify it by incorporating the break points into the VARMA‐AGARCH model, a process which if ignored would lead to model misspecification. The results obtained demonstrate a significant cross‐market volatility transmission between oil and sovereign bond market with ample sensitivity to structural breaks. The study also computes optimum weight portfolio and hedge ratio both with and without structural breaks and results equally indicate sensitivity to structural breaks.     

Oil price shocks on Indian economy: evidence from Toda Yamamoto and Markov regime-switching VAR

The study investigates the dynamic impact of linear and non-linear specifications of oil price shocks on macroeconomic fundamentals for an oil-importing emerging economy – India – during the period March 1991 to January 2009. The paper deploys extended vector autoregressive (VAR) model of possibly integrated processes proposed by Toda and Yamamoto, which has its advantage of application irrespective of the variables being stationary or cointegrated. The study further estimates two-state Markov regime-switch VAR model to examine regime shift behaviour of the underlying variables and its relationship. The study finds that inflation and foreign exchange reserve are greatly impacted by oil price shocks. The study also confirms that the movement in oil price is exogenous with respect to the movement of India’s macroeconomic variables and the impact of oil price shocks are asymmetric in nature with negative price shocks having more pronounced effect than positive shocks.     

On the asymmetric relationship between stock market development,energy efficiency and environmental quality: A nonlinear analysis

It has been widely documented in the literature that financial development drives up the impact of CO₂ emissions through increases in real economic activities and the consumption of polluting fossil fuel energy. However, when dealing with stock market development, such upward effects on economic growth, energy efficiency, and carbon emissions seems to give away to a positive impact especially in emerging markets. This paper contributes to this debate by exploring both the symmetric and asymmetric responses of CO₂ emission to changes in stock market development indicators. Using both the panel linear and nonlinear ARDL, our results demonstrate the asymmetric effects of stock market development indicator son carbon emissions in the context of emerging markets. In particular, the long-run elasticities results suggest that positive and negative shocks on stock market indicator decreases environmental quality by increasing carbon emissions. Based on these empirical findings, this study offers some crucial policy implications. Especially, policy makers should implement strong environmental policies in emerging markets economies to reduce carbon emissions of industrial companies without significantly affecting the development of financial markets.     

Oil prices,US stock return,and the dependence between their quantiles

In this article, we examine the relationship between oil prices and US equities by proposing a novel quantile-on-quantile (QQ) approach to construct estimates of the effect that the quantiles of oil price shocks have on the quantiles of the US stock return. This approach captures the dependence between the distributions of oil price shocks and the US stock return and uncovers two nuance features in the oil–stock relationship. First, large, negative oil price shocks (i.e. low oil price shock quantiles) can affect US equities positively when the US market is performing well (i.e. at high US return quantiles). Second, while negative oil price shocks could affect the US stock market, the influence of positive oil price shocks is weak, which suggests that the relationship between oil prices on the US equities is asymmetric.     

Wage gap and stock returns: Do investors dislike pay inequality?

Recent research shows that a high wage-gap between managers and workers identifies better-performing firms, but the stock market does not seem to price this information. In this paper, we show that not all investors neglect pay inequality. Using a unique data set on German firms’ employee compensation, we find that the mispricing of the wage gap is driven by limits to arbitrage. Specifically, some investors seem to bid up low-wage-gap stocks for non-monetary reasons, thus exhibiting a preference for low pay-inequality. The results suggest that firms with equitable pay schemes are rewarded with a lower cost of capital.     

Stock market dependence in crisis periods: Evidence from oil price shocks and the Qatar blockade

This paper examines the correlation and the dependence patterns of the Qatar stock market with other markets using copula statistical theory and exploiting new datasets covering the period August 1998 to June 2018. To examine the crisis –specific change in the average degree of dependence we decomposed the data into the time periods before and after oil price shocks and the 2017 political crisis among the Gulf Cooperation Council members (i.e. the Qatari blockade). Our findings from the static copula modelling show that the correlations between the Qatari and the other stock markets significantly change after the oil price and the blockade crisis as well. The degree of change in the correlation is time varying and differs from county-group to another. Moreover, our findings reveals that the 2008 global financial crisis has a stronger impact than the price shocks and political crisis. The findings of the paper are of interest and allow for formulating a reliable and dynamic portfolio design framework for investors and risk managers.     

Systematic risk, and oil price and exchange rate sensitivities in Asia-Pacific stock markets

This paper examines the relationship between beta risk and realized stock index return in the presence of oil and exchange rate sensitivities for 15 countries in the Asia-Pacific region using the international factor model. Thirteen of the 15 countries have the expected beta signs and show significant sensitivity to domestic risk when the world stock market is in both up and down modes. In terms of oil sensitivity, only the Philippines and South Korea are oil-sensitive to changes in the oil price in the short run, when the price is expressed in local currency only. Basically no country shows sensitivity to oil price measured in US dollar regardless whether the oil market is up or down. Nine countries are affected by changes in the exchange rate. In terms of relative factor sensitivity distribution, one is willing to conclude that these stock markets are more conditionally sensitive to local currency oil price changes than to beta risk wherever the relationships are significant.     

The ex-dividend day stock price anomaly: evidence from the Greek stock market

This paper examines the ex-dividend stock price and trading volume behavior in the Greek stock market for the period 2000–2004. We use both standard event-study methodology and cross-sectional regression analysis in assessing the ex-dividend stock price anomaly. We find that stock prices drop less than the dividend amount. By examining abnormal returns as well as abnormal trading volume around the ex-dividend day, we find strong evidence of short-term trading, which is consistent with the presence of dividend-capturing activities around the ex-dividend day. The results from the cross-sectional regression analysis confirm that the short-term trading hypothesis explains the ex-dividend day stock price anomaly in Greece.

Transitions in the stock markets of the US,UK and Germany

In an analysis of the US, the UK and German stock market, we find a change in the behaviour based on the stocks’ beta values. In the years 1995–2006, trades of stocks with high beta and large volume were concentrated in the IT and technology sector, whereas in 2006–2012 those trades are dominated by stocks from the financial sector. We show that an agent-based model can reproduce such a transition. We further show that the initial impulse for the transition might stem from the increase of high-frequency trading at that time.     

Press freedom,externally-generated transparency,and stock price informativeness: International evidence

This paper examines the impact of press freedom on stock price informativeness in a sample of firms from 50 countries. We find a significant relation between more press freedom and lower stock price synchronicity. Our results suggest that the freedom of the press can enhance the information environment of stock markets.     

Short selling and stock returns: Evidence from the UK

The practice of shorting stocks was put forward as one of the causes of the recent financial crisis whereas Shiller (2003), for example, considers shorting an essential element of an efficient market. Shorting involves selling borrowed stocks and subsequently closing the position by purchasing and returning the stock to the lender. A profit will be realised if the stock's price decreases. Shorting enables investors who do not own a perceived overvalued stock to sell. Using a high-frequency UK dataset for the period between September 2003 and April 2010, our findings suggest shorting indicates evidence of overvalued stocks as significantly negative abnormal stock returns appear to follow an increase in shorting. These results do not hold, however, for shorting which occurs around the ex-dividend date. We further find that these results hold during the recent financial crisis.     

Aggressive reporting,investor protection and stock price informativeness: Evidence from Chinese firms

This paper investigates the impact of aggressive reporting on the ability of stock prices to inform in Chinese firms. Using both stock price synchronicity and the probability of informed trading as proxies for stock price informativeness, we find that aggressive reporting damages the ability of stock prices to inform in Chinese firms. Our findings are robust to potential endogeneity and the use of alternative aggressive-reporting measures. Finally, we find that the impact of aggressive reporting in reducing stock price informativeness is stronger in firms located in regions of weaker institutional development and in private sectors firms.     

Dollar exchange rate and stock price: evidence from multivariate cointegration and error correction model

In this paper, we investigate existence of long-run equilibrium relationships among the aggregate stock price, industrial production, real exchange rate, interest rate, and inflation in the United States. Applying Johansen's cointegration analysis to monthly data for the 1974:01-1998:12 period, we find that the S&P 500 stock price is positively related to the industrial production but negatively to the real exchange rate, interest rate, and inflation. Analysis of error correction mechanism reveals that the stock price, industrial production, and inflation adjust to correct disequilibrium among the five variables, while variance decompositions indicate that the stock price is driven to a considerable extent by innovations in the interest rate. Structural stability tests show that the parameters of the cointegrating system and the error correction term are stationary.