Oil shocks, policy uncertainty and stock market return

Wensheng Kanga, Ronald A. Ratti

    Research output: Contribution to journalArticlepeer-review

    392 Citations (Scopus)

    Abstract

    Oil price shocks and economic policy uncertainty are interrelated and influence stock market return. For the U.S. an unanticipated increase in policy uncertainty has a significant negative effect on real stock returns. A positive oil-market specific demand shock (indicating greater concern about future oil supplies) significantly raises economic policy uncertainty and reduces real stock returns. The direct effects of oil shocks on real stock returns are amplified by endogenous policy uncertainty responses. Economic policy uncertainty and oil-market specific demand shock account for 19% and 12% of the long-run variability in real stock returns, respectively. As a robustness check, (domestic) economic policy uncertainty is shown to also significantly influence real stock returns in Europe and in energy-exporting Canada.
    Original languageEnglish
    Pages (from-to)305-318
    Number of pages14
    JournalJournal of International Financial Markets , Institutions and Money
    Volume26
    DOIs
    Publication statusPublished - 2013

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