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Real oil prices and the international sign predictability of stock returns

Harri Pönkä

Finance Research Letters, 2016, vol. 17, issue C, 79-87

Abstract: We study the role of real oil prices on the directional predictability of excess stock market returns in the U.S. and 10 other countries using probit models. Previous studies have shown that oil price shocks have adverse effects on stock returns. We extend this literature by focusing on the sign component of excess returns. Our findings indicate that real oil prices are useful predictors of the direction of stock returns in a number of markets over and above commonly used predictors, but results vary substantially between countries. Interestingly, we find only limited evidence of asymmetric effects of oil price shocks.

Keywords: Equity returns; Real oil prices; Sign predictability; Probit model (search for similar items in EconPapers)
JEL-codes: C22 G12 G17 Q49 (search for similar items in EconPapers)
Date: 2016
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