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Oil Risk in Oil Stocks

Author

Listed:
  • Bert Scholtens
  • Lei Wang

Abstract

We assess the oil price sensitivities and oil risk premiums of NYSE listed oil & gas firms returns by using a two-step regression analysis under two different arbitrage pricing models. Thus, we apply the Fama and French (1992) factor returns in a study of oil stocks. In all, we find that the return of oil stocks is positively associated with the return of the market, the increase of the spot crude oil price, and negatively with the firmÕs book-to-market ratio. The oil firms sensitivities to the market, the oil price and the book-to-market ratio are positively priced by the market under the integrated model. However, both the size and significance of the oil risk premium are unstable. This suggests that increases in the oil price impact on expectations about the oil stocksÕ future return. The positive oil risk premium may disappear as investors change their perception of the effect of oil price changes on stock returns.

Suggested Citation

  • Bert Scholtens & Lei Wang, 2008. "Oil Risk in Oil Stocks," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 89-112.
  • Handle: RePEc:aen:journl:2008v29-01-a05
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    Citations

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    Cited by:

    1. Wang, Chih-Wei & Veiga, Helena & Ramos, Sofía B., 2012. "Asymmetric long-run effects in the oil industry," DES - Working Papers. Statistics and Econometrics. WS ws120502, Universidad Carlos III de Madrid. Departamento de Estadística.
    2. Zahid Iqbal, 2015. "CEO age, education, and introduction of hedging in the oil and gas industry," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 39(1), pages 189-200, January.
    3. Misund, Bård, 2015. "Reserves Replacement and Oil and Gas Company Shareholder returns," UiS Working Papers in Economics and Finance 2015/11, University of Stavanger.
    4. Puah, Chin-Hong & Tan, Lay-Phin & Md Isa, Abu Hassan, 2009. "Nexus between Oil Price and Stock Performance of Power Industry in Malaysia," MPRA Paper 31757, University Library of Munich, Germany.
    5. Andriosopoulos, Kostas & Nomikos, Nikos, 2014. "Performance replication of the Spot Energy Index with optimal equity portfolio selection: Evidence from the UK, US and Brazilian markets," European Journal of Operational Research, Elsevier, vol. 234(2), pages 571-582.
    6. Sklavos, Konstantinos & Dam, Lammertjan & Scholtens, Bert, 2013. "The liquidity of energy stocks," Energy Economics, Elsevier, vol. 38(C), pages 168-175.
    7. Mohamed Amine BOUTABA, "undated". "Does Carbon Affect European Oil Companies' Equity Values?," EcoMod2009 21500018, EcoMod.
    8. Ahmadi, Maryam & Manera, Matteo & Sadeghzadeh, Mehdi, 2016. "Global oil market and the U.S. stock returns," Energy, Elsevier, vol. 114(C), pages 1277-1287.
    9. Martín-Barragán, Belén & Ramos, Sofia B. & Veiga, Helena, 2015. "Correlations between oil and stock markets: A wavelet-based approach," Economic Modelling, Elsevier, vol. 50(C), pages 212-227.
    10. An, Haizhong & Gao, Xiangyun & Fang, Wei & Ding, Yinghui & Zhong, Weiqiong, 2014. "Research on patterns in the fluctuation of the co-movement between crude oil futures and spot prices: A complex network approach," Applied Energy, Elsevier, vol. 136(C), pages 1067-1075.
    11. Scholtens, Bert & Boersen, Arieke, 2011. "Stocks and energy shocks: The impact of energy accidents on stock market value," Energy, Elsevier, vol. 36(3), pages 1698-1702.
    12. Salas-Fumás, Vicente & Rosell-Martínez, Jorge & Delgado-Gómez, José Manuel, 2016. "Capacity, investment and market power in the economic value of energy firms," Energy Economics, Elsevier, vol. 53(C), pages 28-39.
    13. repec:eee:ecmode:v:76:y:2019:i:c:p:172-181 is not listed on IDEAS
    14. Šoba, Oldřich & Širůček, Martin & Havíř, Tomáš, 2013. "Závislost cen akcií ropných společností na ceně ropy
      [The dependence of oil company's stock price on oil price]
      ," MPRA Paper 62899, University Library of Munich, Germany, revised 2013.

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    JEL classification:

    • F0 - International Economics - - General

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