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

Rabah Arezki, Caleb Cho, Ha Nguyen, Kate Nguyen and Anh Pham

No 9770, CESifo Working Paper Series from CESifo

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.

Keywords: oil prices; stock returns; debt (search for similar items in EconPapers)
JEL-codes: E44 G12 Q43 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-cfn, nep-dem, nep-ene and nep-mac
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Working Paper: Corporate Debt and Stock Returns: Evidence from U.S. Firms during the 2020 Oil Crash (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_9770

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