Oil implied volatility and expected stock returns along the worldwide supply chain

Chenchen Li, Yudong Wang and Chongfeng Wu

Energy Economics, 2022, vol. 114, issue C

Abstract: This paper documents that option-implied oil price volatility measured by CBOE Crude Oil Volatility Index (OVX) can significantly and positively forecast future returns of stocks along the worldwide crude oil supply chain. The portfolio investment exercise also confirms that this predictive model can produce positive economic gains, especially for the supplier-side stock asset allocation. The return predictability holds under a series of robustness checks and extensive tests, including multiple digesting sources, business cycles or market conditions, different predictive measures, longer horizons, and the non-linear dependence structure. Our findings suggest that oil implied volatility plays a nonnegligible role in the cross-asset market timing when investors make decisions with supply-chain-related equities in multiple countries.

Keywords: Oil implied volatility; OVX; Stock return predictability; Market timing; The worldwide supply chain (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:114:y:2022:i:c:s0140988322004510

DOI: 10.1016/j.eneco.2022.106322

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