Betting on war? Oil prices, stock returns, and extreme geopolitical events

Knut Nygaard and Lars Qvigstad Sørensen

Energy Economics, 2024, vol. 136, issue C

Abstract: We show that the ability of oil price changes to predict stock returns is limited to periods of extreme geopolitical unrest. Four events generate most of the predictability: the 1973 Arab-Israel war, the 1986 OPEC collapse, the 1990/91 Persian gulf war, and the 2003 invasion of Iraq. We also find that a market-timing trading strategy based on oil price changes typically generates insignificant abnormal returns, contradicting previously published results. Our findings serve as an example of how a significant predictor in a time series forecasting regression may not be a useful or profitable market-timing signal.

Keywords: Return predictability; Oil prices; International stock markets; Market efficiency; Stock returns (search for similar items in EconPapers)
JEL-codes: G11 G14 G15 G17 (search for similar items in EconPapers)
Date: 2024
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:136:y:2024:i:c:s0140988324003670

DOI: 10.1016/j.eneco.2024.107659

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