Are oil price shocks priced in the cross-section of stock returns?

Leonardo Iania, Liana Nersisyan, P. Thao Nguyen and Kristien Smedts
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Leonardo Iania: Université catholique de Louvain, LIDAM/CORE, Belgium
Liana Nersisyan: Université catholique de Louvain, LIDAM/CORE, Belgium
P. Thao Nguyen: KU Leuven
Kristien Smedts: KU Leuven

No 2026014, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: This paper investigates whether oil price shocks are priced in the cross-section of U.S. stock returns. We consider a wide range of oil-related measures, covering different sources: structural oil demand and supply shocks, oil price innovations, uncertainty measure surrounding future oil prices, and oil-related news surprises. We further distinguish between positive and negative shock realizations to assess whether the pricing of oil risk depends on the direction of the underlying shock. We find substantial heterogeneity in the pricing of oil related risks. Oil demand and oil price expectation shocks carry negative risk premia for both positive and negative realizations, while supply shocks are not systematically priced. Oil forecast disagreement carries a negative unconditional risk premium, in contrast to the positive risk premium associated with exposure to precautionary inventory shocks. Overall, the cross-sectional pricing of oil exposure depends on the economic source of the shock and, for some sources, on its direction.

Keywords: Oil price shocks; Cross section stock returns; Oil price uncertainty (search for similar items in EconPapers)
Pages: 36
Date: 2026-08-11
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:2026014

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