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Corporate Debt and Stock Returns: Evidence from U.S. Firms During the 2020 Oil Crash

Author

Listed:
  • Rabah Arezki
  • Caleb Cho
  • Ha Nguyen
  • Kate Nguyen
  • Anh Pham

Abstract

This paper explores the effect of oil price fluctuations on the stock returns of U.S. oil firms using a strategy of identification through heteroskedasticity exploiting the 2020 oil crash. Results are twofold. First, we find that a decline in oil prices statistically significantly reduces stock returns of oil firms. On average, a one percent decline in oil prices leads to a 0.44 percent decline in stock prices. Second, results point to the “irrelevance” of debt in mediating the effect of oil prices on stock returns of oil firms. The liquidity backstop provided by the Federal Reserve appears not to have muted the role of debt for oil firms.

Suggested Citation

  • Rabah Arezki & Caleb Cho & Ha Nguyen & Kate Nguyen & Anh Pham, 2022. "Corporate Debt and Stock Returns: Evidence from U.S. Firms During the 2020 Oil Crash," CESifo Working Paper Series 9770, CESifo.
    • Handle: RePEc:ces:ceswps:_9770
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    References listed on IDEAS

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    More about this item

    Keywords

    oil prices; stock returns; debt;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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