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Firm return volatility and economic gains: The role of oil prices

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  • Narayan, Paresh Kumar
  • Sharma, Susan Sunila

Abstract

In this paper we investigate whether the oil price contributes to stock return volatility for 560 firms listed on the NYSE. Using daily data, we find that the oil price is a significant determinant and predictor of firm return variance. We devise trading strategies based on forecasts of firm return variance using the oil prices and historical averages. We find that investors can make substantial gains in returns by using the oil price in forecasting firm return variances.

Suggested Citation

  • Narayan, Paresh Kumar & Sharma, Susan Sunila, 2014. "Firm return volatility and economic gains: The role of oil prices," Economic Modelling, Elsevier, vol. 38(C), pages 142-151.
  • Handle: RePEc:eee:ecmode:v:38:y:2014:i:c:p:142-151
    DOI: 10.1016/j.econmod.2013.12.004
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    Keywords

    Oil price; Firm return volatility; Time series; NYSE;

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