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Real oil prices and the international sign predictability of stock returns

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  • Pönkä, Harri

Abstract

We study the role of real oil prices on the directional predictability of excess stock market returns in the U.S. and ten other countries using probit models. Previous studies have shown that oil price shocks have adverse effects on stock returns. We extend this literature by focusing on the sign component of excess returns. Our findings indicate that real oil prices are useful predictors of the direction of stock returns in a number of markets over and above commonly used predictors, but results vary substantially between countries. Interestingly, we find only limited evidence of asymmetric effects of oil price shocks.

Suggested Citation

  • Pönkä, Harri, 2015. "Real oil prices and the international sign predictability of stock returns," MPRA Paper 68330, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:68330
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    Cited by:

    1. repec:eee:ecofin:v:47:y:2019:i:c:p:65-84 is not listed on IDEAS
    2. Nyberg, Henri & Pönkä, Harri, 2016. "International sign predictability of stock returns: The role of the United States," Economic Modelling, Elsevier, vol. 58(C), pages 323-338.
    3. repec:eee:riibaf:v:50:y:2019:i:c:p:70-78 is not listed on IDEAS
    4. Harri Pönkä, 2017. "Predicting the direction of US stock markets using industry returns," Empirical Economics, Springer, vol. 52(4), pages 1451-1480, June.
    5. repec:bla:finrev:v:52:y:2017:i:3:p:499-526 is not listed on IDEAS
    6. repec:eee:intfin:v:56:y:2018:i:c:p:93-103 is not listed on IDEAS
    7. Luo, Xingguo & Qin, Shihua, 2017. "Oil price uncertainty and Chinese stock returns: New evidence from the oil volatility index," Finance Research Letters, Elsevier, vol. 20(C), pages 29-34.
    8. Jawadi, Fredj & Louhichi, Waël & Ameur, Hachmi Ben & Cheffou, Abdoulkarim Idi, 2016. "On oil-US exchange rate volatility relationships: An intraday analysis," Economic Modelling, Elsevier, vol. 59(C), pages 329-334.
    9. Diaz, Elena Maria & de Gracia, Fernando Perez, 2017. "Oil price shocks and stock returns of oil and gas corporations," Finance Research Letters, Elsevier, vol. 20(C), pages 75-80.
    10. repec:eee:riibaf:v:42:y:2017:i:c:p:39-60 is not listed on IDEAS
    11. repec:spr:eurasi:v:7:y:2017:i:3:d:10.1007_s40821-016-0058-0 is not listed on IDEAS
    12. repec:eee:pacfin:v:52:y:2018:i:c:p:70-81 is not listed on IDEAS
    13. repec:eee:eneeco:v:76:y:2018:i:c:p:584-593 is not listed on IDEAS

    More about this item

    Keywords

    Equity returns; Real oil prices; Sign predictability; Probit model;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q49 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Other

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