Oil Price Exposure and the Cross-Section of Stock Returns

Jordan Moore, Mihail Velikov

Research output: Contribution to journalArticlepeer-review

Abstract

We provide evidence that equity investors are slow to process information about how current oil price changes affect future earnings announcements. Stock prices respond to lagged quarterly oil price changes when firms start announcing earnings in the next quarter. A cross-sectional equity trading strategy that exploits this predictability yields an annualized Sharpe ratio of 0.50. Our oil-response forecast strategy earns especially high returns after large absolute oil price changes, in recessions or bear markets, and during peak earnings season. The predictability we document is consistent with limited attention, is not driven by risk factor exposure, and survives several robustness tests.

Original languageEnglish (US)
Pages (from-to)274-309
Number of pages36
JournalReview of Asset Pricing Studies
Volume14
Issue number2
DOIs
StatePublished - Jun 1 2024

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

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