Oil Price Shocks and Stock Return Predictability
Lars Qvigstad Sørensen
Norwegian School of Economics (NHH) - Department of Finance and Management Science; RiskMetrics Group
August 18, 2009
EFA 2009 Bergen Meetings Paper
Recent research has documented that oil price changes lead the aggregate market in most industrialized countries, and has argued that it represents an anomaly - an underreaction to information that investors can profit from. I identify oil price changes that are caused by exogenous events and show that it is only these oil price changes that predict stock returns. The exogenous events usually correspond to periods of extreme turmoil - either military conflicts in the Middle East or OPEC collapses. Given the source of the predictability, I question its usefulness as a trading strategy and its representation as an anomaly.
Number of Pages in PDF File: 46
JEL Classification: G11, G12working papers series
Date posted: February 11, 2009 ; Last revised: August 20, 2009
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