Oil price shocks and stock market anomalies

Zhaobo Zhu (1) , Licheng Sun (2) , Jun Tu (3) , Qiang Ji (4)

1 Audencia Business School
2 ODU - Old Dominion University [Norfolk]
3 Singapore Management University
4 UCAS - University of Chinese Academy of Sciences [Beijing]

This paper provides a novel perspective to the nexus of oil prices and stock markets by examining the impact of oil price shocks on stock market anomalies. After decomposing oil price shocks into three types (Kilian, 2009), we find that aggregate demand shocks have the strongest influence on stock market anomalies. In contrast, oil supply shocks and oil specific demand shocks have little impact. Similar results are also found in the industry analysis. Interestingly, the link between aggregate demand shocks and anomalies are the strongest among firms with either small size or high idiosyncratic risks. The documented effects are robust after controlling for investor sentiment as well as several well-known macroeconomic or market factors. Our findings are consistent with but also extend the results of Stambaugh, Yu, and Yuan (2012) in that we show that uncertainty also plays a role in explaining stock market anomalies.

Keywords: Stock market anomalies; Oil supply shocks; Aggregate demand shocks; Oil specific shocks; Investor Sentiment; Stock market anomalies; Stock market anomalies; Stock market anomalies

Domains: General Finance [q-fin.GN]

Zhaobo Zhu, Licheng Sun, Jun Tu, Qiang Ji. Oil price shocks and stock market anomalies. Financial Management, In press. ⟨hal-03712237⟩