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Oil price shocks and industry stock returns

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  • Elyasiani, Elyas
  • Mansur, Iqbal
  • Odusami, Babatunde
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    Abstract

    We examine the impact of changes in the oil returns and oil return volatility on excess stock returns and return volatilities of thirteen U.S. industries using the GARCH (1,1) technique. We find strong evidence in support of the view that oil price fluctuations constitute a systematic asset price risk at the industry level as nine of the thirteen sectors analyzed show statistically significant relationships between oil-futures return distribution and industry excess return. These industries are affected either by oil futures returns, oil futures return volatility or both. In general, excess returns of the oil-user industries are more likely to be affected by changes in the volatility of oil returns, than those of oil return itself. Volatilities of industry excess returns are time-varying, and return volatility for a number of sectors, appears to have long memory. Fama-French factors show universal statistical and high economic significance as risk factors influencing industry excess returns.

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    Bibliographic Info

    Article provided by Elsevier in its journal Energy Economics.

    Volume (Year): 33 (2011)
    Issue (Month): 5 (September)
    Pages: 966-974

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    Handle: RePEc:eee:eneeco:v:33:y:2011:i:5:p:966-974

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    Web page: http://www.elsevier.com/locate/eneco

    Related research

    Keywords: Oil price Industry excess returns Industry return volatility GARCH;

    References

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    Cited by:
    1. Hatice Gaye GENCER & Erdem KILIC, 2014. "Conditional Correlations and Volatility Links Among Gold, Oil and Istanbul Stock Exchange Sector Returns," International Journal of Economics and Financial Issues, Econjournals, vol. 4(1), pages 170-182.
    2. Chen, Shiu-Sheng, 2013. "Forecasting Crude Oil Price Movements with Oil-Sensitive Stocks," MPRA Paper 49240, University Library of Munich, Germany.
    3. Andreas, Brunhart, 2011. "Stock market’s reactions to revelation of tax evasion: an empirical assessment," MPRA Paper 42047, University Library of Munich, Germany, revised Sep 2012.
    4. Marcelo Bianconi & Joe A. Yoshino, 2013. "Risk Factors and Value at Risk in Publicly Trades Companies of the Nonrenewable Energy Sector," Discussion Papers Series, Department of Economics, Tufts University 0773, Department of Economics, Tufts University.
    5. Li, Su-Fang & Zhu, Hui-Ming & Yu, Keming, 2012. "Oil prices and stock market in China: A sector analysis using panel cointegration with multiple breaks," Energy Economics, Elsevier, vol. 34(6), pages 1951-1958.
    6. Sun, Qi & Xu, Weijun & Xiao, Weilin, 2013. "An empirical estimation for mean-reverting coal prices with long memory," Economic Modelling, Elsevier, vol. 33(C), pages 174-181.
    7. Moya-Martínez, Pablo & Ferrer-Lapeña, Román & Escribano-Sotos, Francisco, 2014. "Oil price risk in the Spanish stock market: An industry perspective," Economic Modelling, Elsevier, vol. 37(C), pages 280-290.
    8. Chang, Kuang-Liang & Yu, Shih-Ti, 2013. "Does crude oil price play an important role in explaining stock return behavior?," Energy Economics, Elsevier, vol. 39(C), pages 159-168.
    9. Xu, Weijun & Sun, Qi & Xiao, Weilin, 2012. "A new energy model to capture the behavior of energy price processes," Economic Modelling, Elsevier, vol. 29(5), pages 1585-1591.
    10. Ratti, Ronald A. & Hasan, M. Zahid, 2013. "Oil Price Shocks and Volatility in Australian Stock Returns ‎," MPRA Paper 49043, University Library of Munich, Germany.
    11. Reboredo, Juan C. & Rivera-Castro, Miguel A., 2014. "Wavelet-based evidence of the impact of oil prices on stock returns," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 145-176.
    12. Degiannakis, Stavros & Filis, George & Floros, Christos, 2013. "Oil and stock returns: Evidence from European industrial sector indices in a time-varying environment," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 26(C), pages 175-191.
    13. Wen, Xiaoqian & Guo, Yanfeng & Wei, Yu & Huang, Dengshi, 2014. "How do the stock prices of new energy and fossil fuel companies correlate? Evidence from China," Energy Economics, Elsevier, vol. 41(C), pages 63-75.
    14. Xu, Xiaoran & Wang, Dong, 2013. "China’s Coal Chemical Industry: In the View of Governance Challenges," MPRA Paper 43753, University Library of Munich, Germany.
    15. Lee, Bi-Juan & Yang, Chin Wei & Huang, Bwo-Nung, 2012. "Oil price movements and stock markets revisited: A case of sector stock price indexes in the G-7 countries," Energy Economics, Elsevier, vol. 34(5), pages 1284-1300.

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