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Oil price shocks, policy uncertainty, and stock returns of oil and gas corporations

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  • Kang, Wensheng
  • Perez de Gracia, Fernando
  • Ratti, Ronald A.

Abstract

This paper investigates the effects of oil price shocks and economic policy uncertainty on the stock returns of oil and gas companies. We find that an oil demand-side shock has a positive effect on the return of oil and gas companies on average, whereas shocks to policy uncertainty have a negative effect on the return. Historical decomposition shows that the effects of oil shocks on the stock return are amplified by the endogenous policy uncertainty responses. These results are consistent with those for major integrated oil and gas companies. The return responses, however, show heterogeneous effects of structural shocks on upstream, midstream, and downstream oil and gas companies, suggesting that a well-diversified portfolio is obtainable.

Suggested Citation

  • Kang, Wensheng & Perez de Gracia, Fernando & Ratti, Ronald A., 2017. "Oil price shocks, policy uncertainty, and stock returns of oil and gas corporations," Journal of International Money and Finance, Elsevier, vol. 70(C), pages 344-359.
    • Handle: RePEc:eee:jimfin:v:70:y:2017:i:c:p:344-359
    DOI: 10.1016/j.jimonfin.2016.10.003
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    More about this item

    Keywords

    Oil prices; Policy uncertainty; Oil and gas corporations; Structural VAR;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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