Good oil volatility, bad oil volatility, and stock return predictability

Jihong Xiao and Yudong Wang

International Review of Economics & Finance, 2022, vol. 80, issue C, 953-966

Abstract: This paper aims to investigate the predictability of good and bad volatilities of oil prices for stock returns. Our empirical results show that bad volatility of oil prices, rather than good volatility of oil prices, can predict stock returns after the oil financialization. Especially, bad oil volatility negatively predicts stock returns because it leads to falling economic activity and greater financial market uncertainty. Further analysis finds that the association between bad oil volatility and stock return prediction is stronger with the increase in funding constraints and financial regulation policy uncertainty in the post-financialization period. Also, the predictability of bad oil volatility for stock returns can be enhanced by the retail investor attention.

Keywords: Oil market volatility; Stock return predictability; Good volatility; Bad volatility; Oil financialization (search for similar items in EconPapers)
JEL-codes: G15 G17 Q43 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:80:y:2022:i:c:p:953-966

DOI: 10.1016/j.iref.2022.03.013

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