The effect of oil supply shocks on industry returns

Dayong Huang, Jay Y. Li and Kai Wu

Journal of Commodity Markets, 2021, vol. 24, issue C

Abstract: We examine how industry returns react to various oil shocks developed in Baumeister and Hamilton (2019) and find that oil supply shocks matter as much, if not more, as oil demand and economic activity shocks in driving industry returns. A long-short portfolio that buys (sells) industries benefiting (suffering) from negative oil supply shocks earns an initial abnormal monthly return of 0.88%. This return is corrected by sophisticated investors over time. We find no overreaction to oil demand and economic activity shocks. Our evidence corroborates the view that oil supply shocks matter and that retail investors tend to drive short-term overreaction.

Keywords: Oil prices; Oil supply shocks; Stock returns (search for similar items in EconPapers)
JEL-codes: E44 G12 Q43 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jocoma:v:24:y:2021:i:c:s2405851321000064

DOI: 10.1016/j.jcomm.2021.100172

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