Shocks and stocks: An examination of stock market returns and -uolatility in relation to changes in the oil market
MetadataShow full item record
- Master of Science 
This paper reexamines the dynamic relationship of the oil- and stock markets by extending the original Structural vector autoregressive model (SVAR) for oil market shocks, proposed by Kilian (2009), to include two separate measures for the stock market, returns and volatility. This facilitates a deeper dive into the distribution of the stock market, in addition to an exploration of the relationship between stock returns and -volatility in response to changes in the oil market. We apply our SVAR to both U.S. and Norwegian stock price data for a further investigation of the structural differences between oil importers and -exporters. Using traditional zero short-run restrictions, we find that the global oil price disruptions decomposed by Kilian (2009) are remarkably robust. Further, we show that inclusion of several measures representing the U.S. stock price alter the responses of the stock market dynamics. Specifically, even though returns often are considered the preferable measure for the stock price, volatility is equally important, and oil market disruptions are responsible for a greater part of the variability of volatility than returns. Next, an analysis of the Norwegian stock market dynamics unveil different responses than those of the U.S., suggesting structural differences between the two countries. Oil market disruptions have overall greater explanatory power for the movements of the Norwegian stock market. Concretely, we find a large part of the variability of Norwegian returns to be caused by oil supply shocks. Conversely, oil-specific demand shocks play a larger role for the U.S. stock market than that of Norway. We postulate that economic structures, including net-imports of oil, and sector-focus in the stock market, significantly affects the dynamics of the oil-stock price relationship in a country.
Masteroppgave(MSc) in Master of Science in Business, Economics - Handelshøyskolen BI, 2023