Oil Price Shocks and Stock Return Predictability

46 Pages Posted: 11 Feb 2009 Last revised: 20 Aug 2009

See all articles by Lars Qvigstad Sørensen

Lars Qvigstad Sørensen

Norwegian School of Economics (NHH) - Department of Finance; RiskMetrics Group

Date Written: August 18, 2009

Abstract

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.

JEL Classification: G11, G12

Suggested Citation

Sørensen, Lars Qvigstad, Oil Price Shocks and Stock Return Predictability (August 18, 2009). EFA 2009 Bergen Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1341013 or http://dx.doi.org/10.2139/ssrn.1341013

Lars Qvigstad Sørensen (Contact Author)

Norwegian School of Economics (NHH) - Department of Finance ( email )

Helleveien 30
N-5045 Bergen
Norway

RiskMetrics Group ( email )

1 Chase Manhattan Plaza
New York, NY
United States

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