Oil prices, stock markets and firm performance: Evidence from Europe

Abstract

This paper extends understanding of the relationship between oil prices, stock markets and financial performance of oil and gas firms over the past decade. Firstly, it studies the impact of oil price fluctuations on stock markets in Europe. Secondly, it examines volatility spill-overs between oil and European stock markets. As oil price changes do not equally affect all industries, the study conducts both market-level and sector-level analyses. Thirdly, it examines the impact of crude oil price changes on the financial performance measure of oil and gas firms, both listed and unlisted, from the Western European region.The findings show the existence of the relationship between oil and European stock markets. The responses of stock returns to oil price movements vary across sectors. Furthermore, the results indicate volatility spill-overs between returns in oil price and stock markets. It was found that crude oil prices impact the performance of listed oil and gas firms significantly and positively in Western Europe. In the case of unlisted firms, the results suggest the existence of other factors that have an impact on their performance. The recent geopolitical crisis (2014) negatively affected the financial performance of both listed and unlisted firms. On the other hand, the financial performance of only listed oil and gas firms was negatively influenced by the global financial crisis (2008–2009).