Oil price risk in the Eurozone: a sectoral analysis

  • Received May 10, 2017;
    Accepted September 6, 2017;
    Published October 12, 2017
  • Author(s)
  • DOI
    http://dx.doi.org/10.21511/ppm.15(3).2017.09
  • Article Info
    Volume 15 2017, Issue #3, pp. 108-118
  • TO CITE АНОТАЦІЯ
  • Cited by
    1 articles
  • 1172 Views
  • 166 Downloads

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License

This study investigates how oil price movements impact the main Eurozone industry supersectors returns. We use a multifactor market model in which we incorporate oil price changes as an additional risk factor. In order to account for possible breaks in the relationship, we use the Bai and Perron (1998, 2003) breakpoints identification methodology. We find evidence of the presence of structural instabilities on the relationship between sector stock returns and oil price changes. Different breakpoints are identified, particularly the 2003 Iraq invasion year, the 2008 subprime crisis and the 2012 Euro debt crisis. Moreover, our results prove that stock return sensitivities to oil prices are time varying and sector dependent. Besides, the subprime financial crisis appears to induce a significantly positive effect on the oil-stock market nexus. However, the Euro debt crisis has a mostly negative effect. The other identified breakpoints do not seem to have any significant effect on the oil stock market nexus.

view full abstract hide full abstract
    • Table 1. Descriptive Statistics.
    • Table 2. Multiple breakpoints identification: Bai and Perron (1998, 2003) Test.
    • Table 3. Results of sub-samples estimations with OILR as independent variable