The Effect of Oil Supply Shocks on Industry Returns

61 Pages Posted: 25 Jan 2021

See all articles by Dayong Huang

Dayong Huang

University of North Carolina (UNC) at Greensboro - Bryan School of Business & Economics

Jay Y. Li

University of North Carolina at Greensboro

Kai Wu

Central University of Finance and Economics (CUFE) - School of Finance

Date Written: December 2020

Abstract

We examine how industry returns react to various oil shocks developed in Baumeister and Hamilton (2019) and find that oil supply shocks matter as much, if not more, as oil demand and economic activity shocks in driving industry returns. A long-short portfolio that buys (sells) industries benefiting (suffering) from negative oil supply shocks earns an initial abnormal monthly return of 0.88%. This return is corrected by sophisticated investors over time. We find no overreaction to oil demand and economic activity shocks. Our evidence corroborates the view that oil supply shocks matter and that retail investors tend to drive short-term overreaction.

Keywords: Oil Prices, Oil Supply Shocks, Stock Returns

JEL Classification: G12, E44, Q43

Suggested Citation

Huang, Dayong and Li, Jay Y. and Wu, Kai, The Effect of Oil Supply Shocks on Industry Returns (December 2020). Available at SSRN: https://ssrn.com/abstract=3765078 or http://dx.doi.org/10.2139/ssrn.3765078

Dayong Huang (Contact Author)

University of North Carolina (UNC) at Greensboro - Bryan School of Business & Economics ( email )

401 Bryan Building
Greensboro, NC 27402-6179
United States

HOME PAGE: http://sites.google.com/a/uncg.edu/dayong-huang/

Jay Y. Li

University of North Carolina at Greensboro ( email )

Department of Accounting and Finance
Greensboro, NC
United States
336 334 5647 (Phone)

Kai Wu

Central University of Finance and Economics (CUFE) - School of Finance ( email )

Beijing
China

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