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US Industry-Level Returns and Oil Prices

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  • Fan, Qinbin
  • Jahan-Parvar, Mohammad R.

Abstract

This paper takes a closer look at the puzzle uncovered by Driesprong et al. (2008) and finds empirical support for the "oil effect" in equity returns. Using forty nine US industry-level returns series and changes in oil spot and future prices, we address whether industry-level returns are predictable. We find that using changes in oil spot prices, the answer is yes; but for just under a fifth of industries in our sample. We find weak support for the predictability of industry-level returns based on changes in oil futures prices. Our findings are consistent with the delayed reaction to new information, a variant of Hong and Stein (1996)'s "underreaction" hypothesis.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 15670.

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Date of creation: May 2009
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Handle: RePEc:pra:mprapa:15670

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Keywords: Industry-level returns; Oil prices; Return predictability; Underreaction;

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Cited by:
  1. Chortareas, Georgios & Noikokyris, Emmanouil, 2014. "Oil shocks, stock market prices, and the U.S. dividend yield decomposition," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 639-649.
  2. Zhang, Chuanguo & Chen, Xiaoqing, 2014. "The impact of global oil price shocks on China’s bulk commodity markets and fundamental industries," Energy Policy, Elsevier, vol. 66(C), pages 32-41.

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