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The Economics of Digital Transformation: Approaching Non-stable and Uncertain Digitalized Production Systems Read chapter Read first chapter

2021 | OriginalPaper | Chapter

Oil Shocks and Stock Market Performance: Evidence from the Eurozone and the USA

Authors : João Leitão, Joaquim Ferreira

Published in: The Economics of Digital Transformation

Publisher: Springer International Publishing

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Abstract

Recent oil price developments contribute to renewed interest in the subject of oil shocks regarding international stock market performance. In this connection, this study uses a structural VAR (SVAR) model to evaluate the impact of BRENT and WTI crude oil price effects on the Dow Jones, DAX, CAC, ATHENS Composite, and PSI20 performance. The dynamic analysis gives support to the nonsignificant effects of oil prices on the US and Eurozone markets. Nevertheless, in the context of stock markets, the findings suggest that Dow Jones becomes the prevailing market-driver of Eurozone market performance. Furthermore, there is only a unidirectional, significant relationship in Eurozone stock markets, from the CAC to the PSI20. The outstanding role of the US stock market reflects the fact of this being the world’s largest economy in addition to being closely linked to other economies worldwide. The impact of the French stock market on the Portuguese stock market is justified by the integration of both stock markets in the Euronext Stock Exchange.

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Footnotes
1
The three factors of Fama and French (1993) are described as: (i) RM (Return Market)—Return on a portfolio minus one-month Treasury yield; (ii) SMB (Small minus Big)—average return on the difference in a portfolio between companies’ stocks with small market capitalization and high market capitalization; (iii) High minus low (HML)—average return on the difference in a portfolio of stocks between companies with a high and low book-to-market ratio.
 
2
The authors also note spillover effects from stock markets to oil prices, mainly from financial-related stocks and utilities-related stocks.
 
3
This nonsignificant effect refers to composite indices for G7 member countries. Therefore, oil prices foresee certain sectorial indices’ performances as having mainly a negative sign.
 
4
The dummy variable assumes the value of 0 between December 30, 1994 and September 12, 2008, being equal to 1 between September 15, 2008 and May 10, 2010.
 
5
West Texas Intermediate (WTI) corresponds to the US benchmark oil prices traded on the New York Mercantile Exchange. This product is extracted from the Gulf of Mexico. Brent represents Europe’s benchmark oil prices traded on the Intercontinental Exchange Brent Futures which is extracted, mainly, from the North Sea. However, it should be noted that Brent is the most important reference for the category of sweet light crude, referred to as the best quality oil.
 
6
All data with the exception of the WTI variable were sourced from the Datastream database. The daily data for the WTI variable was sourced from the US Energy Information Administration website.
 
7
The European indices considered in the study are the following: BEL (Belgium); CAC (France); DAX (Germany); FTSE (UK); ATHENS (Greece); AEX (Netherlands); IBEX (Spain); and MIB (Italy).
 
8
Concerning ADF and PP unit root, the null hypothesis arises as the variable has a unit root. In the KPSS unit root, the null hypothesis is that the variable is stationary.
 
9
Due to space constraints, the results are not presented here. However, it can be obtained on request from authors.
 
10
According to Sims (1980), Goux (1996) and Lütkepohl (1999), the dynamic analysis must be complemented with the use of these two forecasting techniques.
 
11
This reference is presented as the authors conclude that predominantly the most relevant stock markets, in the context of the monetary union, influence the performance of less relevant stock markets. References that specifically explain the relationship between the French stock market and the Portuguese stock were not identified in the literature review.
 
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Metadata
Title
Oil Shocks and Stock Market Performance: Evidence from the Eurozone and the USA
Authors
João Leitão
Joaquim Ferreira
Copyright Year
2021
Publisher
Springer International Publishing
Book
The Economics of Digital Transformation

Print ISBN: 978-3-030-59958-4

Electronic ISBN: 978-3-030-59959-1

Copyright Year: 2021

DOI
https://doi.org/10.1007/978-3-030-59959-1_7