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The effect of oil supply shocks on industry returns

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  • Huang, Dayong
  • Li, Jay Y.
  • Wu, Kai

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.

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  • Huang, Dayong & Li, Jay Y. & Wu, Kai, 2021. "The effect of oil supply shocks on industry returns," Journal of Commodity Markets, Elsevier, vol. 24(C).
    • Handle: RePEc:eee:jocoma:v:24:y:2021:i:c:s2405851321000064
    DOI: 10.1016/j.jcomm.2021.100172
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    Cited by:

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    2. Kassouri, Yacouba & Altıntaş, Halil, 2022. "The quantile dependence of the stock returns of “clean” and “dirty” firms on oil demand and supply shocks," Journal of Commodity Markets, Elsevier, vol. 28(C).
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    More about this item

    Keywords

    Oil prices; Oil supply shocks; Stock returns;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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