Oil Price Exposure and the Cross-Section of Stock Returns

Jordan Moore and Mihail Velikov

The Review of Asset Pricing Studies, 2024, vol. 14, issue 2, 274-309

Abstract: We provide evidence that equity investors are slow to process information about how current oil price changes affect future earnings announcements. Stock prices respond to lagged quarterly oil price changes when firms start announcing earnings in the next quarter. A cross-sectional equity trading strategy that exploits this predictability yields an annualized Sharpe ratio of 0.50. Our oil-response forecast strategy earns especially high returns after large absolute oil price changes, in recessions or bear markets, and during peak earnings season. The predictability we document is consistent with limited attention, is not driven by risk factor exposure, and survives several robustness tests. (JEL G10, G11, G14, G40, Q41)

Keywords: Asset Pricing; Anomalies; Oil Prices; Attention; Behavioral Finance; Earnings Announcements (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:oup:rasset:v:14:y:2024:i:2:p:274-309.

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