The influence of oil price uncertainty on stock liquidity

Abstract

Using high‐frequency intraday data, this study provides strong empirical evidence that elevated oil price uncertainty has a significant and negative influence on stock liquidity. More specifically, the results suggest that large oil‐related corporations are most affected, followed by small‐listed firms more generally. Further analysis reveals that liquidity providers widen the bid‐ask spreads to protect themselves during periods of high oil price uncertainty for large‐listed firms, particularly those in the oil industry. These findings are robust to various measures of oil price uncertainty, different market conditions, structural break analysis and show the influence of oil price movements extends to stock liquidity.

How Foreign Institutional Investors’ Ownership Affects Stock Liquidity? Evidence from China

“…Zhang and Wong (2022) use high frequency tick-by-tick intraday data and an innovative method to derive oil demand and supply shocks, and find evidence that oil shocks driven by demand lower stock liquidity, whereas oil supply shocks have the opposite effect. Q. Zhang and Wong (2023) provide strong empirical evidence that elevated oil price uncertainty has a significant and negative influence on stock liquidity.…”

“…Q. Zhang and Wong (2023) provide strong empirical evidence that elevated oil price uncertainty has a significant and negative influence on stock liquidity. Mbanyele (2023) shows that economic policy uncertainty disproportionately contributes to stock illiquidity and the impact is mainly prominent for high risky companies, small firms and firms in competitive industries.…”

Oil Volatility Uncertainty: Impact on Fundamental Macroeconomics and the Stock Index

“…Furthermore, crude oil, being a unique commodity with political and financial characteristics, is influenced by non-fundamental factors such as the US dollar exchange rate, financial crisis, geopolitics, global health crisis, and speculation. Therefore, modeling and forecasting volatility in the oil market represent vital and intricate challenges within both financial and commodity markets (Fan et al 2008;Kilian and Vigfusson 2011;Serletis and Elder 2011;Wang and Wu 2012;Güntner 2014;Van Robays 2016;Cantavella-Jordá 2020;Živkov and Ðurašković 2021;Aladwani 2023;Szczygielski and Chipeta 2023;Zhang and Wong 2023).…”

Liquidity spillover from carbon emission trading markets to stock markets in China

“…Zheng and Su (2017) establish that oil price fluctuations significantly affect stock markets: pronounced demand shocks correlate with increased liquidity, whereas the influence of oil price shifts on oil supply and aggregate demand adversely impacts stock liquidity. Zhang and Wong (2023) suggest that heightened oil uncertainty exerts a significant adverse effect on the stock liquidity of publicly traded firms. For sectors extraneous to the oil industry, the ramifications of escalating oil uncertainty are more pronounced for smaller firms than their larger counterparts.…”