Oil Price Shocks and Stock Market Returns in the Three Largest Oil-producing Countries
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This paper analyzes whether oil price changes can predict stock market returns in the three largest oil-producing countries in the world, namely, Saudi Arabia (SA), Russia and the United States, using different vector error correction models for the period 2000:01-2015:05. Our main hypothesis is that the effects of oil price changes on stock prices depends not only on whether the origin of the oil price shocks is from the demand side or supply side but also on whether the country under study is a net oil-importing or oil-exporting country. The results confirm our hypothesis. In particular, oil price changes driven by supply shocks exert a clearly positive impact on stock market returns in Russia, a negative impact on the US and an ambiguous impact on KSA. However, oil price changes driven by demand shocks have a positive impact on all three countries.