ABSTRACT
In this thesis, I study the sensitivity of the euro area industry stock market returns to the oil price shocks using with monthly data from 1983.8-2007.11 for 38 industries. Using a multivariate Vector Autoregressive (VAR) model with 5 variables (interest rate, real oil price changes, industrial production, total stock market return and industrial stock market return) as well as impulse response function and variance decomposition, I conclude that oil price changes have a negative e ffect on stock returns for almost all industries except oil & gas producers, oil equipments, services & distribution, industrial metals & mines and mining. The significance of the results di ffer when I use diff erent oil price speci cation but robust to di fferent VAR ordering. When I check for the eff ect of asymmetric oil price changes, I conclude that negative oil price shocks have more e ffect than positive oil price shocks on stock market returns. I also conclude that oil price shocks contribute more than interest rate and industrial production into the variance error of real industrial stock market returns. This result emphasizes the impact of oil price shocks on stock markets. However, the e ffect of industrial production and interest rate on the stock markets increase after 1999. It shows that independent from oil shocks, introduction of a common monetary policy within the euro area and the integration of the euro area economies caused a higher exposure of stock markets to interest rate and industrial production changes.
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