Download This PaperOil Price Shocks and Stock Return Predictability
46 Pages Posted: 11 Feb 2009 Last revised: 20 Aug 2009
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: Suggested Citation
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