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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)

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    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.

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    File URL: http://www.nhh.no/Admin/Public/DWSDownload.aspx?File=%2fFiles%2fFiler%2finstitutter%2ffor%2fdp%2f2009%2f1309.pdf
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    Bibliographic Info

    Paper provided by Department of Business and Management Science, Norwegian School of Economics in its series Discussion Papers with number 2009/13.

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    Length: 46 pages
    Date of creation: 11 Nov 2009
    Date of revision:
    Handle: RePEc:hhs:nhhfms:2009_013

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    Keywords: Oil Price; Stock Markets;

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