Summary:
Large fluctuations in international oil prices not only exacerbate global economic uncertainty but also make it difficult to study the impact of crude oil prices on the economy. Researchers usually study this relationship using end-of-month closing price data. However, the price volatility caused by the financialization of crude oil markets imparts a substantial amount of noise—i.e., information unrelated to economic fundamentals—to crude oil prices, with the result that closing prices on adjacent trading days diverge significantly. It is unlikely that short-term changes in crude oil prices will affect economic fundamentals, and there is no evidence that such short-term fluctuations will affect the stock market. Therefore, considering only end-of-month closing price data will inevitably lead to large errors in analysis results and even erroneous conclusions. Information noise will distort the price of crude oil, causing it to deviate from the normal supply and demand price. Therefore, researchers must try to eliminate the impact of noise when using crude oil prices to analyze economy. To this end, we propose a simple and feasible method, the moving average method, with which we expect to reduce the impact of noise to some extent. The empirical results show that the oil price trend factor based on the moving average method has significantly improved predictive power for the stock market compared to the simple oil price factor. Why is the oil price trend factor based on the moving average method significantly better at predicting the stock market？ We believe there are several reasons. First, short-term fluctuations in international crude oil prices contain noise unrelated to economic fundamentals, but the moving average method can weaken the influence of noise to some extent. Second, due to an insufficient investor response (Hong and Stein, 1999), it takes time for oil price information to fully reflect the stock market (Driesprong et al., 2008). Unlike the simple oil price factor, which contains price information only for a particular day, the trend factor based on the moving average method contains price information for the preceding period and thus has a stronger forecasting effect on the stock market. Third, the trend factor can better grasp unfolding price trends and influence investor expectations. Based on the moving average method, this paper extracts the oil price trend factor from international crude oil prices to study the impact of oil price fluctuations on the stock markets of 35 “Belt and Road” countries. The study finds that the moving average method can effectively reduce information noise in oil prices. The stock market forecasting effect of the oil price trend factor based on the moving average method exists both inside and outside the sample. This paper also examines the stock markets of oil-producing countries and those of non-oil-producing countries. It confirms that the stock market impact of oil price fluctuations is asymmetric betweenoil-producing and non-oil-producing countries in two aspects. First, a rise in crude oil prices is conducive to the stock markets of oil-producing countries but not to those of non-oil-producing countries. Second, stock markets of oil-producing countries are more sensitive to fluctuations in crude oil prices. In addition, the paper finds that the stock market forecasting ability of international oil prices is time-varying. When the economy is in a down cycle, international oil prices are more predictive of the stock market. The main contribution of this paper is that it proposes and confirms a simple, feasible method of reducing oil price information noise, namely the moving average method. Second, this paper provides new and powerful evidence on the impact of oil prices on the stock market. Whether the price of oil can predict the stock market is still controversial (Chen et al., 1986; Huang et al., 1996; Jones and Kaul, 1996; Driesprong et al., 2008). After reducing noise with the oil price trend factor, this paper finds that there still exists an impact of international oil prices on the stock market.
朱小能, 袁经发. 去伪存真:油价趋势与股票市场——来自“一带一路”35国的经验证据[J]. 金融研究, 2019, 471(9): 131-150.
ZHU Xiaoneng, YUAN Jingfa. Oil Price Trends and the Stock Market: Empirical Evidence from 35 Countries along “the Belt and Road”. Journal of Financial Research, 2019, 471(9): 131-150.
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