 Do oil price changes contain useful predictive information about the U.S. bear stock market?Wei-Ming Lee and Shue-Jen Wu The North American Journal of Economics and Finance, 2025, vol. 80, issue C Abstract: This paper investigates the predictive power of κ-month oil price changes (characterizing oil market trends) for the U.S. bear stock market. We find from both in-sample and out-of-sample evaluations that κ-month oil price changes with κ>12 can strongly predict the bear stock market, but conventional oil predictors fail to have predictive power. In particular, a higher current oil price relative to its level κ months ago will induce a higher probability of bear stock market in the future and the 48-month oil price change performs best at most of the forecast horizons considered. These results are robust to different subsamples, oil price series, estimation schemes for out-of-sample analysis, and phases of the business cycle. Moreover, the information provided by the 48-month oil price change covers that of inflation rate and does not completely overlap with that provided (individually or jointly) by non-oil predictors so that forecast improvement can be achieved by taking it into account. Keywords: Bear stock market; Oil price change; Oil trend; Out-of-sample; Predictability (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:80:y:2025:i:c:s1062940825001044 DOI: 10.1016/j.najef.2025.102464 Access Statistics for this article The North American Journal of Economics and Finance is currently edited by Hamid Beladi More articles in The North American Journal of Economics and Finance from Elsevier |
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