Title: The effect of oil prices on stock prices: a structural time series approach

Authors: Imad Moosa

Addresses: School of Economics, Finance and Marketing, RMIT University, Melbourne, Victoria 3000, Australia

Abstract: A structural time series model is estimated to examine the effect of oil prices on stock prices in three oil importing and four oil exporting countries. The results show that some missing variables affect the secular behaviour of, and that oil prices can explain cyclical variation in, stock prices. In all cases the effect of oil prices on stock prices turns out to be significantly positive. This finding is explained in terms of the positive effect running from economic activity to both oil prices and stock prices.

Keywords: oil prices; structural time series modelling; demand shocks; supply shocks; asymmetric responses; missing variables; TVP estimation; time-varying parameter; Kalman filter; stock prices.

DOI: 10.1504/IJGEI.2015.070261

International Journal of Global Energy Issues, 2015 Vol.38 No.4/5/6, pp.232 - 241

Received: 08 Jul 2014
Accepted: 27 Sep 2014

Published online: 20 Jun 2015 *

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