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Oil Price Shocks and Stock Return Predictability

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  • Sørensen, Lars Qvigstad

    (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

Abstract

Recent research has documented that oil price changes lead the aggregate market in most industrialized countries, and has argued that it represents an anomaly - an underreaction to information that investors can profit from. I identify oil price changes that are caused by exogenous events and show that it is only these oil price changes that predict stock returns. The exogenous events usually correspond to periods of extreme turmoil - either military conflicts in the Middle East or OPEC collapses. Given the source of the predictability, I question its usefulness as a trading strategy and its representation as an anomaly.

Suggested Citation

  • Sørensen, Lars Qvigstad, 2009. "Oil Price Shocks and Stock Return Predictability," Discussion Papers 2009/13, Norwegian School of Economics, Department of Business and Management Science.
    • Handle: RePEc:hhs:nhhfms:2009_013
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    File URL: http://hdl.handle.net/11250/227265
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    Cited by:

    1. Shaeri, Komeil & Adaoglu, Cahit & Katircioglu, Salih T., 2016. "Oil price risk exposure: A comparison of financial and non-financial subsectors," Energy, Elsevier, vol. 109(C), pages 712-723.
    2. Alizadeh, Amir H. & Muradoglu, Gulnur, 2014. "Stock market efficiency and international shipping-market information," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 33(C), pages 445-461.

    More about this item

    Keywords

    Oil Price; Stock Markets;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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