Bernanke: why oil and stocks move together
Former President of the Federal Reserve, Ben Bernanke, has laid out his views on why the correlation between oil and stocks has increased of late. For much of the start of the year it appeared that declining crude benchmarks were weighing on global stocks, and more recently a recovery in oil has seen shares move off their lows.
Bernanke explains his opinion on this relationship by stating:
“Much of this positive correlation can be explained by the tendency of stocks and oil prices to react in the same direction to common factors, including changes in aggregate demand and in overall uncertainty and risk aversion. However, even accounting for these factors, the residual correlation is close to zero, not negative as we would expect if it were capturing only beneficial supply shocks.”
“There are several other explanations that could be investigated: for example, the possibility that declines in oil prices, even if initially caused by higher supply,affect global financial conditions by damaging the creditworthiness of oil-producing companies or countries.“
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