The effects of oil price shocks on stock market volatility: Evidence from European data

Degiannakis, Stavros and Filis, George and Kizys, Renatas (2014): The effects of oil price shocks on stock market volatility: Evidence from European data. Published in: Energy Journal , Vol. 1, No. 35 (2014): pp. 35-56.

Abstract

The paper investigates the effects of oil price shocks on stock market volatility in Europe by focusing on three measures of volatility, i.e. the conditional, the realised and the implied volatility. The findings suggest that supply-side shocks and oil specific demand shocks do not affect volatility, whereas, oil price changes due to aggregate demand shocks lead to a reduction in stock market volatility. More specifically, the aggregate demand oil price shocks have a significant explanatory power on both current- and forward-looking volatilities. The results are qualitatively similar for the aggregate stock market volatility and the industrial sectors’ volatilities. Finally, a robustness exercise using short- and long-run volatility models supports the findings.

• Item Type: MPRA Paper
• Language: English
• Keywords: Conditional Volatility, Realised Volatility, Implied Volatility, Oil Price Shocks, SVAR
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C13 - Estimation: General; C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; G - Financial Economics > G1 - General Financial Markets > G10 - General; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q40 - General

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