Which oil shocks really matter in equity markets?

Do oil shocks impact stock liquidity?

“…This presents a improvement over monthly or daily data that may be severely inadequate for modern financial markets where trade and quote data can easily exceed tens of thousands on a daily basis (e.g., Brogaard et al, 2014). Further, consistent with advancements in the literature (Clements et al, 2019;Malik & Umar, 2019;Naeem et al, 2020;Umar et al, 2021;Wong, 2021;Wong & Hasan, 2021), we adopt the innovative methodology by Ready (2018) to segregate oil shocks into demand and supply driven contributors to circumvent the SVAR limitations.…”

“…Building on this, the extant literature provides significant empirical evidence that oil shocks which are differentiated can have very diverse impacts for a cross-section of industries (e.g., Kilian & Park, 2009;Ratti et al, 2011;Ready, 2018;Wong, 2021;Wong & Hasan, 2021). It is noteworthy that despite the popularity of Kilian's (2009) SVAR approach, the process to determine whether changes in demand are driven by expectations of changes in demand or due to supply concerns can be practically challenging (e.g., Clements et al, 2019;Wong & Hasan, 2021). Hence, recent literature on oil shocks have gravitate towards the innovative methodology of Ready (2018) which circumvent the SVAR limitation by using the prices of publicly traded assets (see also Naeem et al, 2020;Umar et al, 2021).…”

“…Following advancements in the literature to circumvent the SVAR issue (Clements et al, 2019;Malik & Umar, 2019;Wong & Hasan, 2021;Wong, 2021), we follow the innovative Ready (2018) methodology to isolate oil shocks into demand and supply contributors. Consistent with prior studies, to proxy for oil demand and supply shocks respectively, we extract the World Integrated Oil and Gas Producer Index from Refinitiv Datastream (to represent the index of oilproducing firms) and utilize the second nearest-to-maturity future contracts for NYMEX 1-month crude oil contracts.…”

“…It is worth highlighting that low frequency method using monthly (Zheng & Su, 2017) and daily data (Sklavos et al, 2013) may be severely inadequate to measure stock liquidity, particularly in the US whereby trade executions and bidask quotation changes can easily exceed tens of thousands of transactions per stock on a daily basis (e.g., Brogaard et al, 2014). Further, following recent advancements in energy finance, our study adopts Ready's (2018) innovative method to segregate oil shocks into demand and supply contributors to avoid the structural vector autoregression (SVAR) limitation which requires correlation with current or future changes in oil prices to correctly identify demand and supply shocks (see e.g., Clements et al, 2019;Malik & Umar, 2019;Wong, 2021;Wong & Hasan, 2021).…”

Oil price shocks and yield curve dynamics in emerging markets

“…In addition, and more importantly, unlike the work of Ioannidis and Ka (2019), who relies on the decomposition of the oil shocks as suggested by Kilian (2009), we use the more refined recent approach of Clements et al, (2019). Although the decomposition method of Kilian (2009) has been popularly used in the literature relating oil shocks to asset markets, it tends to give too much weight to oil-specific demand shocks relative to supply shocks.…”