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What drives the commodity price beta of oil industry stocks?

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  • Talbot, Edward
  • Artiach, Tracy
  • Faff, Robert

Abstract

We test theoretical drivers of the oil price beta of oil industry stocks. The strongest statistical and economic support comes for market conditions-type variables as the prime drivers: namely, oil price (+), bond rate (+), volatility of oil returns (−) and cost of carry (+). Though statistically significant, exogenous firm characteristics and oil firms' financing decisions have less compelling economic significance. There is weaker support for the prediction that financial risk management reduces the exposure of oil stocks to crude oil price variation. Finally, extended modelling shows that mean reversion in oil prices also helps explain cross-sectional variation in the oil beta.

Suggested Citation

  • Talbot, Edward & Artiach, Tracy & Faff, Robert, 2013. "What drives the commodity price beta of oil industry stocks?," Energy Economics, Elsevier, vol. 37(C), pages 1-15.
  • Handle: RePEc:eee:eneeco:v:37:y:2013:i:c:p:1-15
    DOI: 10.1016/j.eneco.2013.01.004
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Phan, Dinh & Nguyen, Hoa & Faff, Robert, 2014. "Uncovering the asymmetric linkage between financial derivatives and firm value — The case of oil and gas exploration and production companies," Energy Economics, Elsevier, vol. 45(C), pages 340-352.
    2. Kolodziej, Marek & Kaufmann, Robert K. & Kulatilaka, Nalin & Bicchetti, David & Maystre, Nicolas, 2014. "Crude oil: Commodity or financial asset?," Energy Economics, Elsevier, vol. 46(C), pages 216-223.
    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.

    More about this item

    Keywords

    Commodity beta; Oil price; Oil industry;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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