Skip to main content
SpringerLink
Log in

Energy Prices, Sectoral Indices and Regulation

  • Chapter
  • First Online:
Energy Technology and Valuation Issues

  • 910 Accesses

Abstract

The aim of this research is to examine the time-varying correlation between selected industrial sector indices (oil-intensive, oil-substitutes and non-oil-related) and oil price shocks. We investigate this correlation for both oil-importing and oil-exporting economies. Using data from 1998 until 2013 and employing a Scalar-BEKK model, we report the following regularities: (1) the correlation between oil price shocks and index returns are showing some differences depending on whether a country is oil-importer or oil-exporter, (2) the correlations are industry-specific and shock-specific and (3) the demand-side shocks mainly generate moderate positive correlations, whereas index returns have low to zero correlation with the supply-side shocks. Prominent among our results is that oil-specific demand shocks have a moderate positive correlation with all indices. Our results have important implication for investors, as well as policy makers.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
eBook
USD 16.99
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Hardcover Book
USD 119.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

References

  • Abel BA, Bernanke BS (2001) Macroeconomics. Addison Wesley Longman Inc., Boston

    Google Scholar 

  • Abhyankar A, Xu B, Wang J (2013) Oil price shocks and the stock market: evidence from Japan. Energy J 34:199–222

    Article  Google Scholar 

  • Al Janabi MAM, Hatemi-J A, Irandoust M (2010) An empirical investigation of the informational efficiency of the GCC equity markets: evidence from bootstrap simulation. Int Rev Financial Anal 19:47–54

    Article  Google Scholar 

  • Alquist R, Kilian L (2010) What do we learn from the price of crude oil futures? J Appl Econ 25:539–573

    Article  Google Scholar 

  • Antonakakis N, Filis G (2013) Oil prices and stock market correlation: a time-varying approach. Int J Energy Stat 1:17–29

    Article  Google Scholar 

  • Arouri MEH (2011) Does crude oil move stock markets in Europe? A sector investigation. Econ Model 28:1716–1725

    Article  Google Scholar 

  • Arouri MEH, Nguyen DK (2010) Oil prices, stock markets and portfolio investment: evidence from sector analysis in Europe over the last decade. Energy Policy 38:4528–4539

    Article  Google Scholar 

  • Arouri MEH, Jouini J, Nguyen DK (2011) Volatility spillovers between oil prices and stock sector returns: implications for portfolio management. J Int Money Finance 30:1387–1405

    Article  Google Scholar 

  • Arouri MEH, Jouini J, Nguyen DK (2012) On the impacts of oil price fluctuations on European equity markets: volatility spillover and hedging effectiveness. Energy Econ 34:611–617

    Article  Google Scholar 

  • Barsky RB, Kilian L (2004) Oil and the macroeconomy since the 1970s. J Econ Perspect 18:115–134

    Article  Google Scholar 

  • Baumeister C, Peersman G (2012) Time-varying effects of oil supply shocks on the US economy. Bank of Canada Working Paper Series, WP2012-02

    Google Scholar 

  • Bharn R, Nikolovann B (2010) Global oil prices, oil industry and equity returns: Russian experience. Scottish J Polit Econ 57:169–186

    Article  Google Scholar 

  • Bjornland HC (2009) Oil price shocks and stock market booms in an oil exporting country. Scottish J Polit Econ 56:232–254

    Article  Google Scholar 

  • Broadstock DC, Cao H, Zhang D (2012) Oil shocks and their impact on energy related stocks in China. Energy Econ 34:1888–1895

    Article  Google Scholar 

  • Burbidge J, Harrison A (1985) A historical decomposition of the great depression to determine the role of money. J Monet Econ 16:45–54

    Article  Google Scholar 

  • Buyuksahin B, Robe MA (2011) Does ‘paper oil’ matter? Energy markets’ financialization and equity-commodity co-movements. Working paper, The American University

    Google Scholar 

  • Buyuksahin B, Haigh MS, Harris JH, Overdahl JA, Robe MA (2009) Fundamentals, trader activity, and derivative pricing. Working paper, Commodity Futures Trading Commission

    Google Scholar 

  • Buyuksahin B, Haigh MS, Robe MA (2010) Commodities and equities: ever a ‘market of one’? J Alternat Invest 12:76–95

    Article  Google Scholar 

  • Caporin M, McAleer M (2008) Scalar BEKK and indirect DCC. J Forecast 27:537–549

    Article  Google Scholar 

  • Caporin M, McAleer M (2012) Do we really need both BEKK and DCC? A tale of two covariance models. J Econ Surv 26:736–751

    Article  Google Scholar 

  • Chang CL, McAleer M, Tansuchat R (2013) Conditional correlations and volatility spillovers between crude oil and stock index returns. North Am J Econ Finance 25:116–138

    Article  Google Scholar 

  • Choi K, Hammoudeh S (2010) Volatility behavior of oil, industrial commodity and stock markets in a regime-switching environment. Energy Policy 38:4388–4399

    Article  Google Scholar 

  • Ciner C (2012) Oil and stock returns: frequency domain evidence. J Int Financ Mark Inst Money 23:1–11

    Article  Google Scholar 

  • Degiannakis S, Filis G, Floros C (2013) Oil and stock returns: evidence from European industrial sector indices in a time-varying environment. J Int Financ Mark Inst Money 26:175–191

    Article  Google Scholar 

  • Degiannakis S, Filis G, Kizys R (2014) The effects of oil price shocks on stock market volatility: evidence from European data. Energy J 35:35–56

    Article  Google Scholar 

  • Driesprong G, Jacobsen B, Maat B (2008) Striking oil: another puzzle? J Financ Econ 89:307–327

    Article  Google Scholar 

  • El-Sharif I, Brown D, Burton B, Nixon B, Russell A (2005) Evidence on the nature and extent of the relationship between oil prices and equity values in the UK. Energy Econ 27:819–830

    Article  Google Scholar 

  • Elyasiani E, Mansur I, Odusami B (2011) Oil price shocks and industry stock returns. Energy Econ 33:966–974

    Article  Google Scholar 

  • Engle FR (2002) Dynamic conditional correlation: a simple class of multivariate GARCH models. J Bus Econ Stat 20:339–350

    Article  Google Scholar 

  • Engle RF, Kroner KF (1995) Multivariate simultaneous generalized ARCH. Econ Theory 11:122–150

    Article  Google Scholar 

  • Fattouh B (2010) Oil market dynamics through the lens of the 2002–2009 price cycle. OIES Working Paper 39, Oxford Institute for Energy Studies

    Google Scholar 

  • Fattouh B, Kilian L, Mahadeva L (2013) The role of speculation in oil markets: what have we learned so far? Energy J 34:7–33

    Article  Google Scholar 

  • Filis G (2010) Macro economy, stock market and oil prices: do meaningful relationships exist among their cyclical fluctuations? Energy Econ 32:877–886

    Article  Google Scholar 

  • Filis G (2014) Time-varying co-movements between stock market returns and oil price shocks. Int J Energy Stat 2:27–42

    Article  Google Scholar 

  • Filis G, Chatziantoniou I (2014) Financial and monetary policy responses to oil price shocks: evidence from oil-importing and oil-exporting countries. Rev Quant Finance Acc 42:709–729

    Article  Google Scholar 

  • Filis G, Degiannakis S, Floros C (2011) Dynamic correlation between stock market and oil prices: the case of oil-importing and oil-exporting countries. Int Rev Financial Anal 20:152–164

    Article  Google Scholar 

  • Gogineni S (2010) Oil and the stock market: an industry level analysis. Financ Rev 45:995–1010

    Article  Google Scholar 

  • Hamilton JD (1983) Oil and the macroeconomy since World War II. J Polit Econ 91:228–248

    Article  Google Scholar 

  • Hamilton JD (1996) This is what happened to the oil price-macroeconomy relationship. J Monet Econ 38:215–220

    Article  Google Scholar 

  • Hamilton JD (2008) Oil and the macroeconomy. In: Durlauf S, Blume L (eds) New Palgrave dictionary of economics, 2nd edn. Palgrave McMillan Ltd., New York

    Google Scholar 

  • Hamilton JD (2009a) Understanding crude oil prices. Energy J 30:179–206

    Article  Google Scholar 

  • Hamilton JD (2009b) Causes and consequences of the oil shock of 2007–08. Brookings Papers on Economic Activity Spring, pp 215–261

    Google Scholar 

  • Hamilton JD, Wu JC (2012) Risk Premia in crude oil futures prices. Working paper, University of California at San Diego

    Google Scholar 

  • Hammoudeh S, Li H (2005) Oil sensitivity and systematic risk in oil-sensitive stock indices. J Econ Bus 57:1–21

    Article  Google Scholar 

  • Hammoudeh S, Dibooglu S, Aleisa E (2004) Relationships among U.S. oil prices and oil industry equity indices. Int Rev Econ Finance 13:427–453

    Article  Google Scholar 

  • Hooker AM (1996) What happened to the oil price-macroeconomy relationship? J Monet Econ 38:195–213

    Article  Google Scholar 

  • Jones CM, Kaul G (1996) Oil and the stock markets. J Finance 51:463–491

    Article  Google Scholar 

  • Jones DW, Lelby PN, Paik IK (2004) Oil prices shocks and the macroeconomy: what has been learned since. Energy J 25:1–32

    Article  Google Scholar 

  • Kilian L (2008a) Exogenous oil supply shocks: how big are they and how much do they matter for the US economy? Rev Econ Stat 90:216–240

    Article  Google Scholar 

  • Kilian L (2008b) The economic effects of energy price shocks. J Econ Lit 46:871–909

    Article  Google Scholar 

  • Kilian L (2009) Not all oil shocks are alike: disentangling demand and supply shocks in the crude oil market. Am Econ Rev 99:1053–1069

    Article  Google Scholar 

  • Kilian L, Lee TK (2014) Quantifying the speculative component in the real price of oil: the role of global oil inventories. J Int Money Finance 42:71–87

    Article  Google Scholar 

  • Kilian L, Lewis LT (2011) Does the Fed respond to oil price shocks? Econ J 121:1047–1072

    Article  Google Scholar 

  • Kilian L, Murphy DP (2014) The role of inventories and speculative trading in the global market for crude oil. J Appl Econ 29(3):454–478

    Article  Google Scholar 

  • Kilian L, Park C (2009) The impact of oil price shocks on the US stock market. Int Econ Rev 50:1267–1287

    Article  Google Scholar 

  • Lescaroux F, Mignon V (2009) The symposium on ‘China’s impact on the global economy’: measuring the effects of oil prices on China’s economy: a factor-augmented vector autoregressive approach. Pac Econ Rev 14:410–425

    Article  Google Scholar 

  • Lippi F, Nobili A (2012) Oil and the macroeconomy: a quantitative structural analysis. J Eur Econ Assoc 10:1059–1083

    Article  Google Scholar 

  • Mohanty SK, Nandha M, Turkistani AQ, Alaitani MY (2011) Oil price movements and stock market returns: evidence from Gulf Cooperation Council (GCC) countries. Global Finance J 22:42–55

    Article  Google Scholar 

  • Nakov A, Pescatori A (2010) Oil and the great moderation. Econ J 120:131–156

    Article  Google Scholar 

  • Nandha M, Faff R (2008) Does oil move equity prices? A global view. Energy Econ 30:986–997

    Article  Google Scholar 

  • Narayan PK, Sharma SS (2011) New evidence on oil price and firm returns. J Bank Finance 35:3253–3262

    Article  Google Scholar 

  • Park JW, Ratti RA (2008) Oil price shocks and stock markets in the US and 13 European countries. Energy Econ 30:2587–2608

    Article  Google Scholar 

  • Rahman S, Serletis A (2011) The asymmetric effects of oil price shocks. Macroecon Dyn 15:437–471

    Article  Google Scholar 

  • Sadorsky P (1999) Oil price shocks and stock market activity. Energy Econ 21:449–469

    Article  Google Scholar 

  • Scholtens B, Yurtsever C (2012) Oil price shocks and European industries. Energy Econ 34:1187–1195

    Article  Google Scholar 

  • Segal P (2011) Oil price shocks and the macroeconomy. Oxford Rev Econ Policy 27:169–185

    Article  Google Scholar 

  • Silvennoinen A, Teräsvirta T (2009) Multivariate GARCH models. In: Anderson TG, David RA, Kreisand Blume L (eds) Handbook of financial time series. Springer, Berlin, Heidelberg

    Google Scholar 

  • Silvennoinen A, Thorp S (2010) Financialization, crisis, and commodity correlation dynamics. Working paper, University of Technology, Sydney

    Google Scholar 

  • Smith JL (2009) World oil: market or mayhem? J Econ Perspect 23:145–164

    Article  Google Scholar 

  • Tang K, Xiong W (2012) Index investment and financialization of commodities. Financ Anal J 68:54–74

    Article  Google Scholar 

  • Wang Y, Wu C, Yang L (2013) Oil price shocks and stock market activities: evidence from oil-importing and oil-exporting countries. J Comp Econ 41:1220–1239

    Article  Google Scholar 

  • Xekalaki E, Degiannakis S (2010) ARCH models for financial applications. Wiley, New York

    Book  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Research Institute of Economics and Management (RIEM), Southwestern University of Finance and Economics (SWUFE), 55 Guanghua Cun Jie, Chengdu, Sichuan, 6100074, China

    David Broadstock

  2. Faculty of Economics Business and Law, Surrey Energy Economics Centre (SEEC), University of Surrey, Surrey, UK

    David Broadstock

  3. Department of Accounting, Finance and Economics, Bournemouth University, Executive Business Centre, 89 Holdenhurst Road, Bournemouth, BH8 8EB, UK

    George Filis

Authors
  1. David Broadstock
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. George Filis
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to George Filis .

Editor information

Editors and Affiliations

  1. Department of Finance, Faculty of Economics and Business Administration, VU University Amsterdam, Amsterdam, The Netherlands

    André Dorsman

  2. Department of Finance, University of Groningen Faculty of Economics and Business, Groningen, The Netherlands

    Wim Westerman

  3. School of Economics and Finance, Curtin University Curtin Business School, Perth, West Australia, Australia

    John L. Simpson

Rights and permissions

Reprints and permissions

Copyright information

© 2015 Springer International Publishing Switzerland

About this chapter

Cite this chapter

Broadstock, D., Filis, G. (2015). Energy Prices, Sectoral Indices and Regulation. In: Dorsman, A., Westerman, W., Simpson, J. (eds) Energy Technology and Valuation Issues. Springer, Cham. https://doi.org/10.1007/978-3-319-13746-9_3

Download citation

Publish with us

Policies and ethics

Search

Navigation