Oil Prices, Earnings, and Stock Returns

Review of Accounting Studies 26, pp. 218-257, 2021

54 Pages Posted: 1 Jun 2017 Last revised: 2 Sep 2022

See all articles by Steve Crawford

Steve Crawford

University of Houston

Garen Markarian

HEC - University of Lausanne

Volkan Muslu

C.T. Bauer College of Business University of Houston

Richard A. Price

University of Oklahoma

Date Written: May 1, 2020

Abstract

Prior research has failed to document a consistent association between oil prices and stock prices. We propose and examine whether that failure is due to the need to link oil price changes to firm-level changes in earnings and investments. We find that the impact of oil prices on a firm’s earnings and investments varies significantly by industry and by whether the firm is an oil producer or oil consumer. Nevertheless, firm fixed effects explain more than ten times the variation between oil prices and firm performance/investments than industry and time fixed effects combined, indicating that aggregation by industry and time can mask the unique impact of oil prices on an individual firm’s earnings and investments. We also find that investors react more strongly to oil-related earnings than non-oil-related earnings, particularly for oil consumers. Investor reaction to oil-related earnings also spills over to the stock prices of industry peers. By providing a firm-level mapping of the impact of oil prices on performance/ investments and stock prices, our paper extends prior studies that examine the impact of oil prices on the aggregate economy and stock markets.

Keywords: Oil Price, Commodity Markets, Earnings, Financial Markets

JEL Classification: G0, M40, Q02, D53

Suggested Citation

Crawford, Steve and Markarian, Garen and Muslu, Volkan and Price, Richard A., Oil Prices, Earnings, and Stock Returns (May 1, 2020). Review of Accounting Studies 26, pp. 218-257, 2021, Available at SSRN: https://ssrn.com/abstract=2977575 or http://dx.doi.org/10.2139/ssrn.2977575

Steve Crawford

University of Houston ( email )

4800 Calhoun Road
Houston, TX 77204
United States

Garen Markarian

HEC - University of Lausanne ( email )

UNIL Dorigny
Lausanne, Lausanne 1015
Switzerland

Volkan Muslu (Contact Author)

C.T. Bauer College of Business University of Houston ( email )

4750 Calhoun Road
Houston, TX 77204
United States
713 7434924 (Phone)

Richard A. Price

University of Oklahoma ( email )

307 W Brooks
Norman, OK 73019
United States
405-325-5759 (Phone)

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