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Do Oil and Gas Risk Factors Matter in the Malaysian Oil and Gas Industry? A Fama-MacBeth Two Stage Panel Regression Approach

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  • Mohmmad Enamul Hoque

    () (Graduate School of Business, Universiti Kebangsaan Malaysia, Bangi 43600, Malaysia)

  • Soo Wah Low

    () (Graduate School of Business, Universiti Kebangsaan Malaysia, Bangi 43600, Malaysia)

  • Mohd Azlan Shah Zaidi

    () (Faculty of Economics and Management, Universiti Kebangsaan Malaysia, Bangi 43600, Malaysia)

Abstract

This study examines whether oil and gas risk factors are priced in the returns of Malaysian oil and gas stocks employing asset pricing model with improved version of Fama-MacBeth two-stage panel regression. The findings reveal that oil price risk, gas price risk, and exchange rate risk are priced factors in the returns of oil and gas stocks, alongside market-based risk factors. Oil price, gas price and exchange rate factors are found to be associated with positive risk premium implying that they are systematic risk factors in the Malaysian oil and gas industry. Investors demand compensation for exposure to changes in oil price, gas price and exchange rate, implying that the risk cannot be eliminated through diversification. The risk premium for common systematic risk factors such as market, book-to-market, and momentum factors are found to be negative. The results suggest that in the Malaysian oil and gas industry, momentum driven strategy produces negative returns and investors receive higher returns from investing in growth oriented oil and gas stocks. Our results offer implications for asset pricing and portfolio management.

Suggested Citation

  • Mohmmad Enamul Hoque & Soo Wah Low & Mohd Azlan Shah Zaidi, 2020. "Do Oil and Gas Risk Factors Matter in the Malaysian Oil and Gas Industry? A Fama-MacBeth Two Stage Panel Regression Approach," Energies, MDPI, Open Access Journal, vol. 13(5), pages 1-15, March.
  • Handle: RePEc:gam:jeners:v:13:y:2020:i:5:p:1154-:d:328131
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    References listed on IDEAS

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    Cited by:

    1. João Maria Filgueira & Amaro Olimpio Pereira Júnior & Renato Samuel Barbosa de Araújo & Neilton Fidelis da Silva, 2020. "Economic and Social Impacts of the Oil Industry on the Brazilian Onshore," Energies, MDPI, Open Access Journal, vol. 13(8), pages 1-18, April.

    More about this item

    Keywords

    Fama-MacBeth two-stage panel regression; systematic risk; oil and gas industry; asset pricing;

    JEL classification:

    • Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics
    • Q0 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q49 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Other

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