Oil Price Shocks and Stock Return Predictability

Lars Qvigstad Sørensen ()
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Lars Qvigstad Sørensen: Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Finance and Management Science, Helleveien 30, N-5045 Bergen, Norway

No 2009/13, Discussion Papers from Norwegian School of Economics, Department of Business and Management Science

Abstract: Recent research has documented that oil price changes lead the aggregate market in most industrialized countries, and has argued that it represents an anomaly - an underreaction to information that investors can profit from. I identify oil price changes that are caused by exogenous events and show that it is only these oil price changes that predict stock returns. The exogenous events usually correspond to periods of extreme turmoil - either military conflicts in the Middle East or OPEC collapses. Given the source of the predictability, I question its usefulness as a trading strategy and its representation as an anomaly.

Keywords: Oil Price; Stock Markets (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2009-11-11
New Economics Papers: this item is included in nep-ene
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