US stocks in the presence of oil price risk: Large cap vs. Small cap

Afees Adebare Salisu, Raymond Swaray, Tirimisiyu Oloko


This study queries the act of making generalization about the dynamics of returns and volatility spillovers between oil price and U.S. stocks by merely considering only large cap stocks. It argues that this kind of generalization may be misleading, as the reactions of large cap, mid cap and small cap stocks to change in oil prices are not expected to be uniform. Our findings show that it is correct to make generalization about oil-U.S. stock relationship with large cap stocks when analysing returns spillovers, but the generalization is incorrect when considering stock caps returns volatility spillovers, particularly under falling and relatively stable oil prices.

Full Text:



Alsalman, Z. (2016) Oil price uncertainty and the U.S. stock market analysis based on a GARCH-in-mean VAR model, Energy Economics 59, 251-260.

Arouri, M. E., Jouini, J. and Nguyen, D. K. (2011) Volatility spillovers between oil prices and stock sector returns: Implications for portfolio management, Journal of International Money and Finance 30, 1387–1405.

Banz, R. W. (1981) The Relationship between Return and Market Value of Common Stocks, Journal of Financial Economics, 9(1):3-18.

Baumeister, C. and Kilian, L. (2016) Understanding the Decline in the Price of Oil since June 2014, Journal of the Association of Environmental and Resource Economists 3(1): 131-158.

Dias, A. (2013) Market capitalization and Value-at-Risk, Journal of Banking & Finance, 37(12), 5248-5260.

Economou, A. (2016) Oil Price Shocks: A Measure of the Exogenous and Endogenous Supply Shocks of Crude Oil, The Oxford Institute for Energy Studies, OIES PAPER: WPM 68.

Engle, R.F. and Ng, V.K. (1993) Measuring and Testing the Impact of News on Volatility, Journal of Finance, 48, 1022-1082.

Engle, R.F. and Sheppard, K. (2001) Theoretical and Empirical Properties of Dynamic Conditional Correlation Multivariate GARCH. NBER Working Paper Series, Working Paper 8554.

Glosten, L., Jagannathan, R. and Runkle, D. (1993). Relationship between the expected value and volatility of the nominal excess returns on stocks, Journal of Finance, 48, 1779-1802.

Kilian, L. and Park, C. (2009) The Impact of Oil Price Shocks on the US Stock Market, International Economic Review 50(4), 1267–1287.

Ling, S. and McAleer, M. (2003) Asymptotic theory for a vector ARMA – GARCH model, Econometric Theory 19, 280– 310.

Mollick, A.V. and Assefa, T.A. (2013) US stock returns and oil prices: The tale from daily data and the 2008 – 2009 financial crisis, Energy Economics 36, 1 –18.

McAleer , M., Hoti, S. and Chan, F. ( 2009) Structure and asymptotic theory for multivariate asymmetric conditional volatility, Econometric Reviews 28, 422-440.

Salisu A.A. and Oloko, T.F. (2015) Modelling oil price-US stock nexus: A VARMA-BEKK-AGARCH approach, Energy Economics 50, 1-12.

Switzer, L. N. (2010) The behaviour of small cap vs. large cap stocks in recessions and recoveries: Empirical evidence for the United States and Canada, North American Journal of Economics and Finance 21, 332-346.

Wurgler, J. (2000) Financial Markets and the Allocation of Capital, Journal of Financial Economics, 58(1):187-214.



  • There are currently no refbacks.

ISSN: 2254-4380