The impact of oil price shocks on the U.S.stock market after becoming a net oil exporter
Abstract
In our thesis, we study the effects of oil price shocks on the U.S. stock market. The
U.S. has transitioned from being a net importer of oil, to becoming a net exporter in
recent years. This is mainly due to “The Shale Oil Revolution” which was made
possible by technological innovation. Our main analysis is motivated by our
hypothesis that U.S. real stock returns now react positively to a positive oil price
shock. Contrary to the old common perception that stock returns in the U.S. decrease
when the oil price increases. We used the framework by Kilian & Park from their
article “The Impact of Oil Price Shocks on The U.S. Stock Market” (2009). They
used a Structural Vector Autoregressive (SVAR) model, to capture the dynamics
between the variables. Using our subsample in our model, we found that U.S. stock
returns now respond positively to positive oil price shock. After our main analysis,
we offer some critique to Kilian & Park, mainly regarding The Kilian Index, as well
as discuss other possible specifications of the model.
Description
Masteroppgave(MSc) in Master of Science in Business, Finance - Handelshøyskolen BI, 2017