Oil price shocks and the connectedness of US state-level financial markets


POLAT O., Cunado J., Cepni O., Gupta R.

Energy Economics, cilt.141, 2025 (SSCI) identifier

  • Yayın Türü: Makale / Tam Makale
  • Cilt numarası: 141
  • Basım Tarihi: 2025
  • Doi Numarası: 10.1016/j.eneco.2024.108128
  • Dergi Adı: Energy Economics
  • Derginin Tarandığı İndeksler: Social Sciences Citation Index (SSCI), Scopus, International Bibliography of Social Sciences, PASCAL, Periodicals Index Online, ABI/INFORM, Agricultural & Environmental Science Database, Business Source Elite, Business Source Premier, Compendex, EconLit, Environment Index, INSPEC, PAIS International, Public Affairs Index
  • Anahtar Kelimeler: Connectedness, Oil price shocks, State-level municipal bond returns, State-level stock market returns
  • Bilecik Şeyh Edebali Üniversitesi Adresli: Evet

Özet

This paper investigates the impact of oil supply, demand, and risk shocks on U.S. state-level stock and bond returns, utilizing daily data from February 1994 to March 2024. It examines the individual effects of oil price shocks on each state's stock and bond returns and explores how fluctuations in oil prices influence the interdependence between state-level stock and bond markets. The findings reveal that oil demand shocks have a significant positive impact, while oil supply shocks have a significant negative impact on state-level stock returns. Although state-level bond returns also react to these supply and demand shocks, their response is statistically less significant than that of stock returns, indicating that cross-asset diversification is possible during periods of oil supply and demand shocks. However, both stock and bond returns are significantly and negatively affected by oil risk shocks, which implies limited opportunities for cross-asset diversification when oil price fluctuations are driven by risk factors. Additionally, the interdependence between U.S. equity and bond markets is more significantly influenced by oil risk shocks than by supply or demand shocks, suggesting an increase in the interconnectedness of stock and bond returns following an oil risk shock. Further analysis, using a reverse-MIDAS model to relate high-frequency connectedness measures to monthly oil price shocks, indicates that oil supply shocks positively and significantly impact stock market connectedness, while oil inventory demand shocks negatively affect bond market connectedness. Implications of our findings are discussed.