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What drives the commodity price beta of oil industry stocks?

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  • Talbot, Edward
  • Artiach, Tracy
  • Faff, Robert

Abstract

We test theoretical drivers of the oil price beta of oil industry stocks. The strongest statistical and economic support comes for market conditions-type variables as the prime drivers: namely, oil price (+), bond rate (+), volatility of oil returns (−) and cost of carry (+). Though statistically significant, exogenous firm characteristics and oil firms' financing decisions have less compelling economic significance. There is weaker support for the prediction that financial risk management reduces the exposure of oil stocks to crude oil price variation. Finally, extended modelling shows that mean reversion in oil prices also helps explain cross-sectional variation in the oil beta.

Suggested Citation

  • Talbot, Edward & Artiach, Tracy & Faff, Robert, 2013. "What drives the commodity price beta of oil industry stocks?," Energy Economics, Elsevier, vol. 37(C), pages 1-15.
    • Handle: RePEc:eee:eneeco:v:37:y:2013:i:c:p:1-15
    DOI: 10.1016/j.eneco.2013.01.004
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    More about this item

    Keywords

    Commodity beta; Oil price; Oil industry;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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