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Market inefficiencies associated with pricing oil stocks during shocks

Author

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  • Qiao, Kenan
  • Sun, Yuying
  • Wang, Shouyang

Abstract

The assumption that market efficiency informs the pricing of oil stocks is critical to understanding the co-movement between stock markets and oil markets. To test this assumption in relation to various types of real oil price changes, this article proposes a two-stage analysis method that starts with a quantile regression to identify oil shocks and develop interval-valued factor pricing models. These interval-based methods, relative to traditional point-based methods, can produce more efficient parameter estimations by providing more information. The results show that oil stocks tend to be overpriced following negative oil price shocks, which partially violates the efficient market hypothesis. Yet oil stocks are efficiently priced in response to moderate changes or positive oil price shocks, such that in most cases, the market remains efficient in pricing oil stocks.

Suggested Citation

  • Qiao, Kenan & Sun, Yuying & Wang, Shouyang, 2019. "Market inefficiencies associated with pricing oil stocks during shocks," Energy Economics, Elsevier, vol. 81(C), pages 661-671.
    • Handle: RePEc:eee:eneeco:v:81:y:2019:i:c:p:661-671
    DOI: 10.1016/j.eneco.2019.04.016
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    Citations

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    Cited by:

    1. Sun, Yuying & Zhang, Xinyu & Wan, Alan T.K. & Wang, Shouyang, 2022. "Model averaging for interval-valued data," European Journal of Operational Research, Elsevier, vol. 301(2), pages 772-784.
    2. Lee, Min-Jae & Choi, Sun-Yong, 2024. "Insights into the dynamics of market efficiency spillover of financial assets in different equity markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 641(C).
    3. Alaba, Oluwayemisi O. & Ojo, Oluwadare O. & Yaya, OlaOluwa S & Abu, Nurudeen & Ajobo, Saheed A., 2021. "Comparative Analysis of Market Efficiency and Volatility of Energy Prices Before and During COVID-19 Pandemic Periods," MPRA Paper 109825, University Library of Munich, Germany.
    4. Sun, Yuying & Bao, Qin & Zheng, Jiali & Wang, Shouyang, 2020. "Assessing the price dynamics of onshore and offshore RMB markets: An ITS model approach," China Economic Review, Elsevier, vol. 62(C).
    5. Lu, Xinjie & Ma, Feng & Wang, Jiqian & Zhu, Bo, 2021. "Oil shocks and stock market volatility: New evidence," Energy Economics, Elsevier, vol. 103(C).

    More about this item

    Keywords

    Crude oil shocks; Interval-valued factor pricing models; Market efficiency; Oil stocks; Quantile regression;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other

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