Oil prices, earnings, and stock returns

Steve Crawford, Garen Markarian, Volkan Muslu () and Richard Price
Additional contact information
Steve Crawford: University of Houston
Garen Markarian: WHU
Volkan Muslu: University of Houston
Richard Price: University of Oklahoma

Review of Accounting Studies, 2021, vol. 26, issue 1, No 7, 218-257

Abstract: Abstract Research has failed to document a consistent association between oil prices and stock prices. We propose and examine whether that failure is due to the need to link oil price changes to firm-level changes in earnings and investments. We find that the impact of oil prices on a firm’s earnings and investments varies significantly by industry and by whether the firm is an oil producer or oil consumer. Nevertheless, firm fixed effects explain more than 10 times the variation between oil prices and a firm’s earnings and investments than industry and time fixed effects combined, indicating that aggregation by industry and time can mask the unique impact of oil prices on an individual firm’s earnings and investments. We also find that investors react more strongly to oil-related earnings than non-oil-related earnings, particularly for oil consumers. Investor reaction to oil-related earnings also spills over to the stock prices of industry peers. By providing a firm-level mapping of the impact of oil prices on earnings, investments, and stock prices, our paper extends studies that have examined the impact of oil prices on the aggregate economy and stock markets.

Keywords: Oil Price; Commodity markets; Earnings; Financial markets (search for similar items in EconPapers)
JEL-codes: D53 G0 M40 Q02 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (16)

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DOI: 10.1007/s11142-020-09556-7

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