Discussion Papers, Department of Finance and Management Science, Norwegian School of Economics (NHH)
No 2009/13:
Oil Price Shocks and Stock Return Predictability
Lars Qvigstad Sørensen ()
Abstract: Recent research has documented that oil price changes lead
the aggregate market in most industrialized countries, and has argued that
it represents an anomaly - an underreaction to information that investors
can profit from. I identify oil price changes that are caused by exogenous
events and show that it is only these oil price changes that predict stock
returns. The exogenous events usually correspond to periods of extreme
turmoil - either military conflicts in the Middle East or OPEC collapses.
Given the source of the predictability, I question its usefulness as a
trading strategy and its representation as an anomaly.
Keywords: Oil Price; Stock Markets; (follow links to similar papers)
JEL-Codes: G11; G12; (follow links to similar papers)
46 pages, November 11, 2009
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