Oil Price and Industry Stock Returns: Evidence from Indonesia

18 Pages Posted: 25 Aug 2008 Last revised: 27 Aug 2008

Date Written: August 25, 2008

Abstract

This study examines the impact of oil price changes on stock returns of nine industry sectors in Indonesia using monthly data during the period January 1996 to June 2008. The results suggest that that in general oil price changes do not have significant impacts on industry stock returns. However, the Government decision to liberalize domestic oil price in October 2005 has a positive and significant impact on stock returns of the mining, but a negative and significant impact on stock returns of the trading sectors. Moreover, using a dummy interaction variable to observe the impact of oil price hikes following the oil price liberalization policy, we find a consistent result for the mining and trading sectors, although the impact is also negative and significant to the consumption and infrastructure sectors. Nevertheless, the sensitivity of stock returns of these sectors on oil price changes is asymmetric, given decreasing oil price does not have significant effects on stock returns of any sectors. This may indicate that decreasing oil price does not always bring good news to investors.

Keywords: oil price, industry stock returns, capital market

JEL Classification: C22, E44, G12

Suggested Citation

Agusman, Agusman and Deriantino, Elis, Oil Price and Industry Stock Returns: Evidence from Indonesia (August 25, 2008). 21st Australasian Finance and Banking Conference 2008 Paper. Available at SSRN: https://ssrn.com/abstract=1253904 or http://dx.doi.org/10.2139/ssrn.1253904

Agusman Agusman (Contact Author)

Bank Indonesia ( email )

Jl. M.H.Thamrin No.2
Jakarta, 10350
Indonesia
62-21-3818075 (Phone)
62-21-3518629 (Fax)

Elis Deriantino

Bank Indonesia ( email )

JL. M.H. Thamrin No.2
Jakarta
Jakarta, DKI Jakarta 10350
Indonesia
62-21-3817779 (Phone)
62-21-3518629 (Fax)

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