This paper examines interdependence between oil shocks and U.S. economic uncertainty and analyzes their effects on global stock markets within a structural VAR model over the period 1974–2018. I find that aggregate demand shocks cause a transitory rise of global stock returns, whereas precautionary oil demand and U.S. economic uncertainty shocks decline the returns. Especially, the oil demand shocks significantly increase the U.S. uncertainty, indicating that their direct impacts on global stock markets are amplified by its endogenous response. Variance decomposition analysis shows that the structural oil and U.S. macro uncertainty shocks explain 17% and 6% of the long-run variation in global stock returns, respectively. Those figures have more than doubled when the model is estimated on post 2000 data, suggesting that oil market fundamentals and U.S. economic uncertainty are an important determinant of fluctuations in global stock returns.​

Keywords: Oil shocks; U.S. economic uncertainty; Stock returns; Structural VAR

JEL Classification Numbers: G15; Q41; Q43