Stock Markets and Energy Prices

Abstract

Concerns about the effects of oil prices on stock markets ebb and flow with the rise and fall in oil prices themselves. This article reviews selected empirical evidence on the relationship between energy price shocks and stock markets. Existing evidence indicates that although a general increase in oil prices tends to favor stock markets of energy-exporting countries more than their oil-importing counterparts, a demand-led rise in oil prices tends to favor stock markets across the globe through the stimulating impact on the aggregate economy whereas supply-driven surge in oil price shocks carries a less significant role in explaining fluctuations in stock returns. A brief assessment on the role of speculation in driving oil prices during 2007–08 is also presented.