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US Industry-Level Returns and Oil Prices

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  • Fan, Qinbin
  • Jahan-Parvar, Mohammad R.

Abstract

This paper takes a closer look at the puzzle uncovered by Driesprong et al. (2008) and finds empirical support for the "oil effect" in equity returns. Using forty nine US industry-level returns series and changes in oil spot and future prices, we address whether industry-level returns are predictable. We find that using changes in oil spot prices, the answer is yes; but for just under a fifth of industries in our sample. We find weak support for the predictability of industry-level returns based on changes in oil futures prices. Our findings are consistent with the delayed reaction to new information, a variant of Hong and Stein (1996)'s "underreaction" hypothesis.

Suggested Citation

  • Fan, Qinbin & Jahan-Parvar, Mohammad R., 2009. "US Industry-Level Returns and Oil Prices," MPRA Paper 15670, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:15670
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    More about this item

    Keywords

    Industry-level returns; Oil prices; Return predictability; Underreaction;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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