Oil Prices, Earnings, and Stock Returns

52 Pages Posted: 1 Jun 2017

See all articles by Steve Crawford

Steve Crawford

University of Houston

Garen Markarian

WHU - Otto Beisheim School of Management

Volkan Muslu

C.T. Bauer College of Business University of Houston

Richard A. Price

University of Oklahoma

Date Written: May 1, 2017

Abstract

Using a comprehensive sample of U.S. firms over the last three decades, we document firms’ sales and expenses increase with oil prices, but earnings decrease with oil prices. Over time, oil prices have had an increasing impact on firm performance. In addition, large firms are more successful in passing on oil price increases to consumers, making large firms net beneficiaries of oil price increases. Furthermore, investors react more strongly to earnings that are associated with oil prices relative to earnings that are not associated with oil prices. Investors’ reaction to oil-related earnings relative to other earnings is stronger for (i) smaller firms, (ii) oil-consuming firms, and when (iii) oil prices are higher and less volatile, (iv) discount rates are lower, and (v) equity market hype and uncertainty are higher. These findings are robust to accounting for the potential endogeneity between oil prices and firm performance. Our findings prescribe caution in making uniform interpretations about the effects of oil prices on a firm’s performance and stock price.

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, 2017). Available at SSRN: https://ssrn.com/abstract=2977575 or http://dx.doi.org/10.2139/ssrn.2977575

Steve Crawford

University of Houston ( email )

Houston, TX 77204
United States

Garen Markarian

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany

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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