 The role of the past long-run oil price changes in stock marketShue-Jen Wu International Review of Economics & Finance, 2023, vol. 84, issue C, 274-291 Abstract: This paper examines the ability of the past long-run changes in oil price to predict the stock returns in the U.S. market. We find this long-lag model performs much better than the one-lag model. The past long-run changes in oil price contain useful information about future real stock returns and excess returns over a Treasury bill rate. This variable alone can capture more than 1% variations of next horizon (month) excess returns, and the predictive power are increasingly strong for long-horizon stock return. These findings are robust when considering other popular predictors into the model, these results are also maintained when considering various subsamples. For out-of-sample examination, the results of McCraken’s (2007) Ros2 and Clark and West’s (2007) MSPE-adjusted statistic explore that this variable contains useful information of future stock returns. More interestingly, the past long-run oil price changes also perform strong predictive power on excess returns for non-US countries. Keywords: Oil price changes; Predictability; Stock returns; In-sample; Out-of-sample; International data (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:84:y:2023:i:c:p:274-291 DOI: 10.1016/j.iref.2022.11.021 Access Statistics for this article International Review of Economics & Finance is currently edited by H. Beladi and C. Chen More articles in International Review of Economics & Finance from Elsevier |
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