TY - JOUR
T1 - Oil Price Exposure and the Cross-Section of Stock Returns
AU - Moore, Jordan
AU - Velikov, Mihail
N1 - Publisher Copyright:
© The Author(s) 2023.
PY - 2024/6/1
Y1 - 2024/6/1
N2 - 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.
AB - 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.
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U2 - 10.1093/rapstu/raad016
DO - 10.1093/rapstu/raad016
M3 - Article
AN - SCOPUS:85193445077
SN - 2045-9920
VL - 14
SP - 274
EP - 309
JO - Review of Asset Pricing Studies
JF - Review of Asset Pricing Studies
IS - 2
ER -