Co-movement among oil, stock, bond, and housing markets: An analysis of U.S., Asian, and European economies

Abstract

This study explores the co-movement among oil and the stock, bond, and housing markets of the U.S. and major developed countries across Europe and Asia. The results indicate that oil is long-run integrated with each asset class, and that the extent of convergence has increased after the onset of the 2007–2009 global financial crisis (GFC). Moreover, oil contributes most heavily toward the common trends, implying that oil is the “leader” sector that drives each asset class toward long-run equilibrium relationships. Short-run analyses indicate that oil shocks induce a negative response in stock and housing returns and a positive reaction in bond returns, showing a tendency to become more intense and persistent after the GFC. When oil shocks are disentangled, the results indicate that supply and demand have heterogeneous effects on the three global asset classes. Over the long-run, demand shocks make the most significant contribution to the common trends and “lead” the other asset classes, whereas supply shocks have either a negligible or a weaker impact. Over the short-run, demand shocks positively impact the stock and housing markets and negatively impact bonds, while supply shocks induce negative and weaker impacts on all three asset classes.