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OIL PRICE SHOCKS AND STOCK MARKET VOLATILITY: EVIDENCE FROM EUROPEAN DATA

 

 

Stavros Degiannakis

Bank of Greece

 

George Filis

Bournemouth University

 

Renatas Kizys

University of Portsmouth

 

 

ABSTRACT

The paper investigates the effects of oil price shocks on stock market volatility in Europe by focusing on three measures of volatility, i.e. the conditional, the realised and the implied volatility. The findings suggest that supply-side shocks and oil specific demand shocks do not affect volatility, whereas, oil price changes due to aggregate demand shocks lead to a reduction in stock market volatility. More specifically, aggregate demand oil price shocks have significant explanatory power on both current- and forward-looking volatilities. The results are qualitatively similar for aggregate stock market volatility and industrial sectors’ volatilities. Finally, a robustness exercise using short- and long-run volatility models supports the findings.

 

Keywords: Conditional Volatility, Realised Volatility, Implied Volatility, Oil Price Shocks, SVAR

 

JEL classification: C13, C32, G10, G15, Q40

 

Acknowledgements: We would like to thank Heather Gibson for her constructive suggestions which helped us to improve the clarity of the paper. The views expressed are those of the authors and should not be interpreted as those of their respective institutions. The authors are solely responsible for any remaining errors and deficiencies.

 

 

 

Correspondence:

Stavros Degiannakis

Bank of Greece

21, El. Venizelos Ave.

10250 Athens, Greece

Tel.: 0030-210-3202371

Email: sdegiannakis@bankofgreece.gr


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