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Institutions and return predictability in oil-exporting countries

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  • Aramonte, Sirio
  • Jahan-Parvar, Mohammad R.
  • Shugarman, Justin K.

Abstract

We study whether oil price changes have predictive power for stock market returns in oil-exporting countries, and we investigate the link between predictability and the quality of each country's institutions. Returns are predictable for half the countries we consider, and predictability is stronger when institutional quality is lower. We argue that the relation between predictability and institutional quality reflects the preference of countries with weaker institutions to consume oil windfalls locally rather than smooth out their impact by, for example, investing the proceeds internationally.

Suggested Citation

  • Aramonte, Sirio & Jahan-Parvar, Mohammad R. & Shugarman, Justin K., 2019. "Institutions and return predictability in oil-exporting countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 71(C), pages 14-26.
    • Handle: RePEc:eee:quaeco:v:71:y:2019:i:c:p:14-26
    DOI: 10.1016/j.qref.2018.09.002
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    2. Kassouri, Yacouba & Altıntaş, Halil & Bilgili, Faik, 2020. "An investigation of the financial resource curse hypothesis in oil-exporting countries: The threshold effect of democratic accountability," Journal of Multinational Financial Management, Elsevier, vol. 56(C).

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    More about this item

    Keywords

    Country studies; Delayed reaction; Equity market return predictability; Institutional quality;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General

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