Abstract
We examine how oil market variables affect short-term stock market returns in the U.S. and in six other major oil-importing countries. Apart from oil price direction, we also consider oil market volatility and liquidity. Analysis of daily returns during the 2007 to 2017 period reveals that oil price direction has a significant positive effect on returns for all markets, which can be interpreted as evidence of oil as a business climate indicator. Furthermore, for the U.S. market, shocks to implied oil market volatility negatively affect stocks, this effect is significantly asymmetric, and declining oil market liquidity predicts declining stock prices.
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