Economics at your fingertips  

Oil volatility risk and expected stock returns

Peter Christoffersen and Pan, Xuhui (Nick)

Journal of Banking & Finance, 2018, vol. 95, issue C, 5-26

Abstract: After the financialization of commodity futures markets in 2004–2005 oil volatility has become a strong predictor of returns and volatility of the overall stock market. Furthermore, stocks’ exposure to oil volatility risk now drives the cross-section of expected returns. The difference in average return between the quintile of stocks with low exposure versus high exposure to oil volatility is significant at 0.66% per month, and oil volatility risk carries a significant risk premium of −0.60% per month. We also find that increases in oil price uncertainty predict tightening funding constraints of financial intermediaries suggesting a link between oil volatility risk and the stock market.

Keywords: Option-implied volatility; Oil prices; Volatility risk; Cross-section; Factor-mimicking portfolios; Financial intermediaries (search for similar items in EconPapers)
JEL-codes: G12 G13 E44 Q02 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Oil Volatility Risk and Expected Stock Returns (2014) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

Page updated 2019-09-05
Handle: RePEc:eee:jbfina:v:95:y:2018:i:c:p:5-26