Oil Price Exposure, Earnings Announcements, and Stock Return Predictability

39 Pages Posted: 17 Apr 2018 Last revised: 22 Feb 2019

See all articles by Jordan Moore

Jordan Moore

Rowan University - Accounting & Finance

Mihail Velikov

Federal Reserve Bank of Richmond

Date Written: January 20, 2019

Abstract

The profits of individual firms have varying degrees of exposure to oil prices. We provide evidence that investors with limited attention are slow to incorporate information about how current oil price changes predict future earnings announcements. A cross-sectional equity trading strategy that exploits this inefficiency is profitable and returns are not explained by common risk factor exposure. Stock prices respond to lagged oil price changes when firms start to announce earnings in the first month of each quarter. Our oil-related drift strategy earns especially high returns in months following quarters with large absolute oil price changes. Equity analysts revise forecasts because of oil price changes in real time. The estimated oil-related drift predicts abnormal returns in the earnings announcement window, especially for firms announcing early in the quarter. The return
predictability of the oil-related drift strategy is not related to other anomalies and is robust to trading costs.

Keywords: Asset Pricing, Anomalies, Oil Prices, Attention, Behavioral Finance, Earnings Announcements

JEL Classification: G10, G11, G14, G40, Q41

Suggested Citation

Moore, Jordan and Velikov, Mihail, Oil Price Exposure, Earnings Announcements, and Stock Return Predictability (January 20, 2019). Available at SSRN: https://ssrn.com/abstract=3164353 or http://dx.doi.org/10.2139/ssrn.3164353

Jordan Moore

Rowan University - Accounting & Finance ( email )

Glassboro, NJ 08028
United States

Mihail Velikov (Contact Author)

Federal Reserve Bank of Richmond ( email )

502 S. Sharp Street
Baltimore, MD 21201
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
126
rank
219,698
Abstract Views
582
PlumX Metrics