Has Oil Pirce Predicted Stock Returns for Over a Century?

Paresh Narayan (pareshkumar.narayan@monash.edu) and Rangan Gupta

No 201446, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper contributes to the debate on the role of oil prices in predicting stock returns. The novelty of the paper is that it considers monthly time-series historical data that span over 150 years (1859:10-2013:12) and applies a predictive regression model that accommodates three salient features of the data, namely, a persistent and endogenous oil price, and model heteroskedasticity. Three key findings are unraveled: First, oil price predicts US stock returns. Second, in-sample evidence is corroborated by out-sample evidence of predictability. Third, both positive and negative oil price changes are important predictors of US stock returns, with negative changes relatively more important. Our results are robust to the use of different estimators and choice of in-sample periods.

Keywords: Stock returns; Predictability; Oil price (search for similar items in EconPapers)
JEL-codes: C22 E37 G17 Q43 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2014-08
New Economics Papers: this item is included in nep-ene, nep-for, nep-his and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Journal Article: Has oil price predicted stock returns for over a century? (2015)
Working Paper: Has oil price predicted stock returns for over a century? (2015)
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