Changes in the price of crude oil are often considered an important factor for understanding fluctuations in stock prices. For example, the Financial Times on August 21, 2006, attributed the decline of the U.S. stock market to an increase in crude oil prices caused by concerns about the political stability in the Middle East (including the Iranian nuclear program, the fragility of the ceasefire in Lebanon, and terrorist attacks by Islamic militants). The same newspaper on October 12, 2006, argued that the strong rallies in global equity markets were due to a slide in crude oil prices that same day. Notwithstanding such widely held views in the financial press, there is no consensus about the relation between the price of oil and stock prices among economists. Kling (1985), for example, concluded that crude oil price increases are associated with stock market declines. Chen, Roll and Ross (1986), in contrast, suggested that oil price changes have no effect on asset pricing. Jones and Kaul (1996) reported a stable negative relationship between oil price changes and aggregate stock returns. Huang, Masulis, and Stoll (1996), however, found no negative relationship between stock returns and changes in the price of oil futures, and Wei (2003) concluded that the decline of U.S. stock prices in 1974 cannot be explained by the
1973/74 oil price increase.