Please use this identifier to cite or link to this item:
Appears in Collections:Accounting and Finance Journal Articles
Peer Review Status: Refereed
Title: Oil price shocks and stock-bond correlation
Author(s): Ziadat, Salm Adel
Al Rababa'a, Abdel Razzaq A
Rehman, Mobeen
McMillan, David
Contact Email:
Keywords: Stocks
Issue Date: 28-Aug-2023
Date Deposited: 17-Aug-2023
Citation: Ziadat SA, Al Rababa'a ARA, Rehman M & McMillan D (2023) Oil price shocks and stock-bond correlation. <i>North American Journal of Economics and Finance</i>, 68, Art. No.: 101989.
Abstract: This paper investigates the role of oil as a determinant of the US stock-bond correlation. The analysis uses monthly data over the period from February 1990 to July 2021. We examine the impact of oil shocks, using the Ready (2018) method, alongside a range of macroeconomic variables on the nature of stock-bond dynamic correlation. Our main findings demonstrate that during recessionary periods, the stock-bond correlation is adversely and statistically explained by oil supply shocks, and that correlation tends to statistically diverge from that of it is counterpart during expansionary periods. In addition, demand shocks are more pronounced in periods of pessimistic investor sentiment, whereas supply and risk shocks appear during optimistic periods. From a risk management standpoint, a backtesting exercise shows that the incorporation of supply and demand shocks generally improves the forecast of portfolio volatility under various portfolio weighting schemes and market conditions. A time-varying hedging exercise also reveals that accounting for both demand and supply shocks reduces the cost of hedging, mainly following major crisis periods. The contribution of shocks appears most with a long position in the bond market after the 2014 oil crisis period. Our main results remain the same after performing a set of the robustness checks.
DOI Link: 10.1016/j.najef.2023.101989
Rights: This is an open access article distributed under the terms of the Creative Commons CC-BY license, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. You are not required to obtain permission to reuse this article. To request permission for a type of use not listed, please contact Elsevier Global Rights Department.
Licence URL(s):

Files in This Item:
File Description SizeFormat 
1-s2.0-S1062940823001122-main.pdfFulltext - Accepted Version1.32 MBAdobe PDFView/Open

This item is protected by original copyright

A file in this item is licensed under a Creative Commons License Creative Commons

Items in the Repository are protected by copyright, with all rights reserved, unless otherwise indicated.

The metadata of the records in the Repository are available under the CC0 public domain dedication: No Rights Reserved

If you believe that any material held in STORRE infringes copyright, please contact providing details and we will remove the Work from public display in STORRE and investigate your claim.