The Impact of Structural Oil Market Shocks on Stock Markets

Fabio Bettiol

Student thesis: Master thesis


In this thesis, we examine whether oil market shocks exert heterogeneous effects on the stock markets of six oil-exporting countries and four oil-importing countries. To investigate this issue, we adopt a two-stage approach. First, following Kilian (2009), we estimate a structural vector auto regression (SVAR) model and identify three structural shocks which are responsible for changes in oil prices. Second, through a set of linear regression models, we analyze the behaviour of the stock markets in relationship with the oil market shocks. Our main findings can be summarized as follows. First, we find that oil market shocks impact on the stock re-turns of all six oil-exporting countries whereas they only affect the stock returns of one oil-importing country. For the oil-exporting countries, positive demand-side oil shocks increase stock returns in Canada, Norway, Russia, Saudi Arabia and the U.A.E whereas positive oil supply shocks adversely affect stock returns in Mexico. For the oil-importing countries, a positive aggregate demand shock increases stock returns in India. Second, we find that positive aggregate demand shocks induce more stock market co-movement among oil-exporting countries. On the other hand, none of the three structural shocks exert an effect on the stock market co-movement among oil-importing countries .

EducationsMSc in Advanced Economics and Finance, (Graduate Programme) Final Thesis
Publication date2020
Number of pages109
SupervisorsKristian Miltersen & Natalia Khorunzhina