Oil Price Returns Skewness and Forecastability of International Stock Returns Over One Century of Data

This study examines the out-of-sample predictability of expected skewness of oil price returns for stock returns of 10 (8 advanced plus 2 emerging) countries using long-range monthly data of over a century for each country. Using a distributed lag predictive econometric model, which controls for endogeneity, persistence, and conditional heteroscedasticity, we provide evidence of the strong statistical significance of the predictive impact of the third moment of oil price returns for equity returns for all the countries across various forecast horizons and length of out-of-sample periods. These findings also continue to hold for the shorter sample periods of 3 other emerging markets: Brazil, China and Russia. Our findings have important implications for academics, investors and policymakers.