Oil price shocks and stock return volatility: New evidence based on volatility impulse response analysis

Abstract

We use volatility impulse response analysis to quantify the size and the persistence of different types of oil price shocks on oil and stock return volatility dynamics. Our results show that precautionary demand followed by aggregate demand-side shocks, compared to supply-side ones, have higher positive and persistent effects on stock return volatility whereas the covariances between the two variables are mostly affected by the former shocks.