TAILIEUCHUNG - Crude Oil and Stock Markets: Stability, Instability, and Bubbles

A private investor’s shareholding, if greater than, say, per cent of the equity, will appear on the company’s share register either in their own name, or that of the trust they may be held in. If less than that, it will be aggregated with other small investors under Miscellaneous Private Investors. If shares are held via an advisory or discretionary stockbroker, they will be held in a nominee account. These are easily identified and effectively aggregate that broking firm’s clients’ holdings in one account. Good company investor relations practice and targeting private investors All quoted companies should have a clear, effective and. | Crude Oil and Stock Markets Stability Instability and Bubbles1 J. Isaac Millera and Ronald A. Rattib Abstract We analyze the long-run relationship between the world price of crude oil and international stock markets over 1971 1-2008 3 using a cointegrated vector error correction model with additional regressors. Allowing for endogenously identified breaks in the cointegrating and error correction matrices we find evidence for breaks after 1980 5 1988 1 and 1999 9. We find a clear long-run relationship between these series for six OECD countries for 1971 and 1988 suggesting that stock market indices respond negatively to increases in the oil price in the long run. During we find relationships that are not statistically significantly different from either zero or from the relationships of the previous period. The expected negative long-run relationship appears to disintegrate after . This finding supports a conjecture of change in the relationship between real oil price and real stock prices in the last decade compared to earlier years which may suggest the presence of several stock market bubbles and or oil price bubbles since the turn of the century. First Draft July 30 2008 Current Draft January 13 2009 JEL classification C13 C32 Q43 Key words and phrases crude oil stock market prices cointegrated VECM structural stability stock market bubble oil price bubble 1 The authors would like to thank Junhwan Jung for excellent research assistance. a Department of Economics University of Missouri. Corresponding author 118 Professional Building Columbia Missouri 65211 millerjisaac@ 573-882-7282 ph 573-882-2697 fx . b Department of Economics University of Missouri. Crude Oil and Stock Markets Stability Instability and Bubbles 1. Introduction The relationship between oil prices and economic activity has been investigated by a number of researchers. On the issue of the effect of oil price shocks on stock market returns Jones .

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