A threshold effect of COVID-19 risk on oil price returns

Yiguo Sun, Delong Li, Chenyi Suo and Yu Wang

Energy Economics, 2023, vol. 120, issue C

Abstract: Using U.S. data, we investigate how the COVID-19 pandemic influences oil price returns in an asset pricing framework. Unlike earlier studies, we consider a threshold model to allow for the possibility that COVID-19 risk may not play a role until it reaches a certain level. Based on WTI crude oil spot price data from January 2020 to December 2021, our findings show that oil returns significantly decline with the daily number of COVID-19 deaths but only if the daily death toll exceeds approximately 2100. In addition, a more severe COVID-19 pandemic can substantially increase the exposure of oil returns to various systematic risk factors, which has not been documented in previous literature.

Keywords: COVID-19; Linear asset pricing model; Oil returns; Threshold model (search for similar items in EconPapers)
JEL-codes: C24 G10 Q40 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:120:y:2023:i:c:s0140988323001160

DOI: 10.1016/j.eneco.2023.106618

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