Journal of Economic Theory and Econometrics: Journal of the Korean Econometric Society

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Journal of Economic Theory and Econometrics
Journal of the Korean Econometric Society

Stock Market Reaction to Oil Price Shocks: A Comparison between an Oil-exporting Economy and an Oil-importing Economy

Vol.22, No.3, September , 1–29

  •   (FICC Trading Team, Tong Yang Securities INC.)

  •   (Dept. Economics, Korea University)


In this study, we assess the responses of aggregate stock returns and their volatility in the face of oil price shocks in the Norwegian and Korean markets. Both Norway and Korea are small open economies; the former exports oil, and the latter imports it. We determine herein that the responses of aggregate stock returns and volatility differ substantially, depending on the underlying cause of the oil price rise and depending on whether an economy exports or imports oil. Additionally, a larger portion of stock return variations in small open economies can be explained by the world crude oil market as opposed to the US market; this implies that the small open economies have more oil-dependent technology and limited access to the global financial market. Finally, the results of our analysis of the conditional covariance measure indicate that the responses of stock returns and volatility are not based on a risk-return tradeoff relationship.

   Stock returns, Volatility, Oil prices, Oil demand shocks, Oil supply shocks

JEL classification codes
   G12, Q43

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