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Oil subsidies and the risk exposure of oil-user stocks: Evidence from net oil producers

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  • Abdulrahman, Alhassan
  • Syed Abul, Basher
  • M. Kabir, Hassan

Abstract

Using a sample of 828 oil-user firms from 14 net oil-producing countries, spanning from Jan 2004 to Dec 2015, we show that stock returns of oil-user companies increase with lagged oil price returns and decrease with lagged oil price volatility. Furthermore, the evidence suggests that oil-user stocks operating in countries with larger fuel subsidies tend to be more exposed to oil returns but not oil volatility. Intuitively, when the oil price increases (decreases), oil-user stocks that operate in countries with larger oil subsidies gain (lose) more than oil-user stocks in countries with smaller fuel subsidies. However, both types of stocks experience losses when the oil market becomes more volatile, with no statistically significant difference between their losses. Our evidence implies a diversification benefit for international investors to reduce their exposure to oil risk. Our results are robust because of the use of alternative proxies, econometric methodologies, and model specifications.

Suggested Citation

  • Abdulrahman, Alhassan & Syed Abul, Basher & M. Kabir, Hassan, 2019. "Oil subsidies and the risk exposure of oil-user stocks: Evidence from net oil producers," MPRA Paper 97080, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:97080
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    More about this item

    Keywords

    Oil price risk; Oil-producing countries; Oil subsidies; Stock performance;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • Q3 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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