Has COVID-19 changed the stock return-oil price predictability pattern?

Fan Zhang, Paresh Kumar Narayan () and Neluka Devpura ()
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Fan Zhang: Zhejiang University of Finance and Economics
Paresh Kumar Narayan: Monash University
Neluka Devpura: University of Sri Jayewardenepura

Financial Innovation, 2021, vol. 7, issue 1, 1-10

Abstract: Abstract In this paper, we examine if COVID-19 has impacted the relationship between oil prices and stock returns predictions using daily Japanese stock market data from 01/04/2020 to 03/17/2021. We make a novel contribution to the literature by testing whether the COVID-19 pandemic has changed this predictability relationship. Employing an empirical model that controls for seasonal effects, return-related control variables, heteroskedasticity, persistency, and endogeneity, we demonstrate that the influence of oil prices on stock returns declined by around 89.5% due to COVID-19. This implies that when COVID-19 reduced economic activity and destabilized financial markets, the influence of oil prices on stock returns declined. This finding could have implications for trading strategies that rely on oil prices.

Keywords: COVID-19; Oil prices; Stock returns (search for similar items in EconPapers)
JEL-codes: E31 E37 F37 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (18)

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DOI: 10.1186/s40854-021-00277-7

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