What Drives the Commodity Price Beta of Oil Industry Stocks?

42 Pages Posted: 16 Sep 2011

See all articles by Ed Talbot

Ed Talbot

affiliation not provided to SSRN

Tracy Charmaine Artiach

Queensland University of Technology

Robert W. Faff

University of Queensland

Date Written: September 16, 2011

Abstract

We test theoretical drivers of the oil price beta of oil industry stocks. The strongest statistical and economic support comes for market conditions - type variables as the prime drivers: namely, oil price, bond rate, volatility of oil returns and cost of carry. Though statistically significant, exogenous firm characteristics and oil firms’ financing decisions have less compelling economic significance. There is weaker support for the prediction that financial risk management reduces the exposure of oil stocks to crude oil price variation. Finally, extended modelling shows that mean reversion in oil prices also helps explain cross-sectional variation in the oil beta.

Keywords: commodity beta, oil price, oil industry

JEL Classification: G12

Suggested Citation

Talbot, Ed and Artiach, Tracy Charmaine and Faff, Robert W., What Drives the Commodity Price Beta of Oil Industry Stocks? (September 16, 2011). Available at SSRN: https://ssrn.com/abstract=1928574 or http://dx.doi.org/10.2139/ssrn.1928574

Ed Talbot

affiliation not provided to SSRN ( email )

Tracy Charmaine Artiach

Queensland University of Technology ( email )

School of Accountancy
2 George Street
Brisbane, Queensland 4000
Australia
0731382534 (Phone)
0731382534 (Fax)

HOME PAGE: http://www.bus.qut.edu.au/faculty/staff-directory/accountancy/

Robert W. Faff (Contact Author)

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

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