Oil price shocks and stock market activity

Results from a vector autoregression show that oil prices and oil price vol atility both play important roles in affecting real stock returns. There is evidence that oil price dynamics have changed. After 1986, oil price movem ents explain a larger fraction of the forecast error variance in real stock returns than do interest rates. There is also evidence that oil price vola tility shocks have asymmetric effects on the economy. (C) 1999 Elsevier Sci ence B.V. All rights reserved. JEL classifications Q43; E44.