How Do Oil Price Changes Affect German Stock Returns?

In this article, the effects of oil price changes on the stock return of 17 German DAX companies are studied from February 1982 to July 2007. By applying panel estimations, we initially identify a nonlinear and asymmetric relationship between oil prices (quoted in US dollar) and the German stock market,which is consistent with a signalling (transmission) channel. Additionally, further evidence is provided for the signalling channel on a disaggregated and daily data base. The results reveal, however, that only certain specific industries are affected by oil price shocks, whereas others remain unaffected. These varying effects of oil price shocks mainly result from the cost- and demand-side dependence on oil that different companies are exposed to.