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Oil and stock market activity when prices go up and down: the case of the oil and gas industry

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  • Sunil Mohanty
  • Aigbe Akhigbe
  • Tawfeek Al-Khyal
  • Turki Bugshan

Abstract

We examine the asymmetric effects of daily oil price changes on equity returns, market betas, oil betas, return variances, and trading volumes for the US oil and gas industry. The responses of stock returns associated with negative changes in oil prices are higher than that associated with positive changes in oil prices. Stock risk measured by market beta is influenced more due to oil price decreases than due to oil price increases. On the other hand, oil risk exposures (oil betas) and return variances are more influenced by oil price increases than oil price decreases. The results of our study indicate that oil and gas firm returns, market betas, oil betas, return variances respond asymmetrically to oil price changes. We also find that relative changes in oil prices along with firm-specific factors such as firm size, ROA, leverage, market-to-book ratio (MBR) are important in determining the effects of oil price changes on oil and gas firms’ returns, risks, and trading volumes. Copyright Springer Science+Business Media, LLC 2013

Suggested Citation

  • Sunil Mohanty & Aigbe Akhigbe & Tawfeek Al-Khyal & Turki Bugshan, 2013. "Oil and stock market activity when prices go up and down: the case of the oil and gas industry," Review of Quantitative Finance and Accounting, Springer, vol. 41(2), pages 253-272, August.
    • Handle: RePEc:kap:rqfnac:v:41:y:2013:i:2:p:253-272
    DOI: 10.1007/s11156-012-0309-9
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    25. Alaali, Fatema, 2017. "Analysing the Effect of Oil Price Shocks on Asset Prices: evidence from UK firms," MPRA Paper 78013, University Library of Munich, Germany.

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    More about this item

    Keywords

    Oil shocks; Stock returns; Oil and gas industry; G10; C32;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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