Stock Returns and Oil Price Changes in Europe: A Sector Analysis*

In this paper, we investigate the effects of oil price fluctuations on stock markets. Unlike previous works, which have focused largely on broad market indices (national and/or regional indices), we examine short‐term links in both mean and variance in the aggregate as well as sector by sector levels in Europe. Our findings show strong significant effects of oil price changes on European sector stock market returns and volatilities. Moreover, we show some evidence of asymmetry in the oil‐stock price relationships. However, the nature and sensitivity of the reaction of stock returns to oil price shocks change considerably across sectors.