The Relationship Between Oil Prices And Stock Market Returns Date

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2. Relevant Literatures and Hypothesis Development Empirical studies on the relationship between crude oil prices and stock market returns date all the way back to the early 1970’s. Jones and Kaul (1996) have found a negative relationship between the oil prices and stock market returns. (Nandha and Faff, 2008; Sadorsky, 2001) Supports the fact that oil price changes also have been seen to have a positive effect on oil and gas industry returns. There have been many variables affecting the way in which this correlation is looked upon. Narayan and Sharma (2011) have studied the relationship between stock return and the oil price shocks based on firm sizes. Tsai (2015) has studied U.S how U.S stock returns respond differently to oil price shocks pre-crisis, within the financial crisis, and post financial crisis. However, based on the specific time period Kilian and Park (2009) found that the effect of the stimulus package dominated the effect of oil price shocks and provided evidence that the U.S stock market was still thriving, representing a positive relationship between crude oil prices and stock market returns. An economy with higher oil prices, increase the discounted value of cash flows of oil firms, assuming these prices are able to be passed onto customers. It has been documented that a change in crude oil prices can lead to an economic depression, which could in turn weaken asset prices. Weaker asset prices will lead to devaluation in a company, which will lead to a

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