Do oil shocks impact stock liquidity?

Abstract

Abstract This paper investigates the impact of oil shocks on the stock liquidity of US listed companies. Using high frequency tick‐by‐tick intraday data and an innovative method to derive oil demand and supply shocks, we find evidence that differentiated oil shocks have distinctive influence on stock liquidity. Specifically, oil shocks driven by demand lower stock liquidity, whereas oil supply shocks have the opposite effect. Generally large corporations are more affected by oil demand and supply shocks. Further analysis reveals that oil, oil‐related, oil‐user and the broad market categories are most affected by oil shocks, but the effects on oil‐substitutes are minimum.