Pönkä, Harri (2015): Real oil prices and the international sign predictability of stock returns.
Preview |
PDF
MPRA_paper_68330.pdf Download (372kB) | Preview |
Abstract
We study the role of real oil prices on the directional predictability of excess stock market returns in the U.S. and ten other countries using probit models. Previous studies have shown that oil price shocks have adverse effects on stock returns. We extend this literature by focusing on the sign component of excess returns. Our findings indicate that real oil prices are useful predictors of the direction of stock returns in a number of markets over and above commonly used predictors, but results vary substantially between countries. Interestingly, we find only limited evidence of asymmetric effects of oil price shocks.
Item Type: | MPRA Paper |
---|---|
Original Title: | Real oil prices and the international sign predictability of stock returns |
Language: | English |
Keywords: | Equity returns, Real oil prices, Sign predictability, Probit model |
Subjects: | C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates G - Financial Economics > G1 - General Financial Markets > G17 - Financial Forecasting and Simulation Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q43 - Energy and the Macroeconomy Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q49 - Other |
Item ID: | 68330 |
Depositing User: | Mr. Harri Pönkä |
Date Deposited: | 12 Dec 2015 01:45 |
Last Modified: | 10 Oct 2019 11:23 |
References: | [1] N.-F. Chen, R. Roll, and R. Ross. Economic forces and the stock market. Journal of Business, 59:383–403, 1986. [2] T. Chevapatrakul. Return sign forecasts based on conditional risk: Evidence from the UK stock market index. Journal of Banking and Finance, 37:2342–2353, 2013. [3] P.F. Christoffersen and F.X. Diebold. Financial asset returns, direction-of-change forecasting, and volatility dynamics. Management Science, 52:1273–1288, 2006. [4] P.F. Christoffersen, F.X. Diebold, R.S. Mariano, A.S. Tay, and Y.K. Tse. Direction-of-change forecasts based on conditional variance, skewness and kurtosis dynamics: international evidence. Journal of Financial Forecasting, 1:1–22, 2007. [5] G. Driesprong, B. Jacobsen, and B. Maat. Striking oil: Another puzzle? Journal of Financial Economics, 89:307–327, 2008. [6] L. Du and Y. He. Extreme risk spillovers between crude oil and stock markets. Energy Economics, 51:455–465, 2015. [7] K.M. Engemann, K.L Kliesen, and M.T. Owyang. Do oil shocks drive business cycles? some U.S. and international evidence. Macroeconomic Dynamics, 15: 498–517, 2011. [8] A. Estrella. A new measure of fit for equations with dichotomous dependent variables. Journal of Business and Economic Statistics, 16:198–205, 1998. [9] J.D. Hamilton. Oil and the macroeconomy since World War II. Journal of Political Economy, 91:228–248, 1983. [10] J.D. Hamilton. This is what happened to the oil price-macroeconomy relationship. Journal of Monetary Economics, 38:215–220, 1996. [11] J.D. Hamilton. Nonlinearities and the macroeconomic effects of oil prices. Macroeconomic Dynamics, 15:364–378, 2011. [12] R. Jiménez-Rodríguez. Oil price shocks and stock markets: Testing for non-linearity. Empirical Economics, 48:1079–1102, 2015. [13] C.M. Jones and G. Kaul. Oil and the stock markets. Journal of Finance, 51:463–491, 1996. [14] H. Kauppi and P. Saikkonen. Predicting U.S. recessions with dynamic binary response models. Review of Economics and Statistics, 90:777–791, 2008. [15] L. Kilian. Not all oil shocks are alike: Disentangling demand and supply shocks in the crude oil market. American Economic Review, 99:1053–1069, 2009. [16] L. Kilian and C. Park. The impact of oil price shocks on the U.S. stock market. International Economic Review, 50:1267–1287, 2009. [17] M.T. Leung, H. Daouk, and A.-S. Chen. Forecasting stock indices: a comparison of classification and level estimation models. International Journal of Forecasting, 16:173–190, 2000. [18] K.A. Mork. Oil and the macroeconomy when prices go up and down: An extension of Hamilton’s results. Journal of Political Economy, 97:740–744, 1989. [19] K.A. Mork, O. Olsen, and H.T. Mysen. Macroeconomic response to oil price increases and decreases in seven OECD countries. Energy Journal, 15:19–35, 1994. [20] M. Nandha and R. Faff. Does oil move equity prices? A global view. Energy Economics, 30:986–997, 2008. [21] P.K. Narayan and S.S. Sharma. New evidence on oil price and firm returns. Journal of Banking and Finance, 35:3253–3262, 2011. [22] H. Nyberg. Forecasting the direction of the US stock market with dynamic binary probit models. International Journal of Forecasting, 27:561–578, 2011. [23] H. Nyberg and H. Pönkä. International sign predictability of stock returns: The role of the United States. CREATES Research Papers, 2015-20, 2015. [24] J. Park and R.A. Ratti. Oil price shocks and stock markets in the U.S. and 13 European countries. Energy Economics, 30:2587–2608, 2008. [25] M.H. Pesaran and A. Timmermann. Market timing and return prediction under model instability. Journal of Empirical Finance, 9:495–510, 2002. [26] M.H. Pesaran and A. Timmermann. Testing dependence among serially correlated multi-category variables. Journal of the American Statistical Association, 485:325–337, 2009. [27] H. Pönkä. Predicting the direction of US stock markets using industry returns. MPRA Paper 62942, University Library of Munich, Germany, Feb 2014. [28] D.E. Rapach and G. Zhou. Forecasting stock returns. In G. Elliott and A. Timmermann, editors, Handbook of Economic Forecasting, volume 2A, pages 329–383. North-Holland, 2013. [29] D.E. Rapach, J.K. Strauss, and G. Zhou. International stock return predictability: What is the role of the United States. Journal of Finance, 68:1633–1662, 2013. [30] J.C. Reboredo. Nonlinear eddects of oil shocks on stock returns: a Markov-switching approach. Applied Economics, 42:3735–3744, 2010. [31] P. Sadorsky. Oil price shocks and stock market activity. Energy Economics, 21:449–469, 1999. [32] A. Serletis and J. Elder. Introduction to oil price shocks. Macroeconomic Dynamics, 15:327–336, 2011. [33] N. Sim and H. Zhou. Oil prices, US stock return, and the dependence between their quantiles. Journal of Banking and Finance, 55:1–8, 2015. |
URI: | https://mpra.ub.uni-muenchen.de/id/eprint/68330 |