Oil price movements and stock markets revisited: A case of sector stock price indexes in the G-7 countries

Abstract

Applying sector stock prices and oil prices in 1991:01–2009:05 from the G7 countries we find oil price shocks do not significantly impact the composite index in each country. However, stock price changes in Germany, the UK and the US were found to lead oil price changes.As for the interaction between oil price changes and sector stock price changes, we find short-run negative causal relationships: 4 of 7 sector index returns were impacted by oil price changes in Germany, 2 in the US and 1 in France. In particular, stock returns of information technology and consumer staples sectors were found to be impacted most by oil price shocks, followed by financial, utilities and transportation sectors.In terms of causality from sector stock price changes to oil price changes, we find stock price changes lead oil price changes in 8 of 9 sectors in Germany, most in the G7 countries followed by the UK, Italy, France, Canada and the US. No such a causal relationship, however, is found for Japan. With respect to specific sectors, stock price changes in consumer staples and materials sectors were impacted most significantly by oil price changes followed by transportation, financial, energy, health care, industrials, utilities, information technology and telecommunication sectors with the exception of consumer discretionary sector. In addition, short term stock price changes are found to lead positively oil price changes.