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Oil price uncertainty, global industry returns and active investment strategies

Author

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  • Demirer, Riza
  • Yuksel, Aydin
  • Yuksel, Asli

Abstract

This paper shows that time-varying oil return volatility predicts regime transitions across a majority of global stock sectors, particularly for durables, financials, industrials, oil & gas, telecommunications and utilities. Global stock sectors yield significantly higher returns during periods of low oil market uncertainty and an active, forward-looking investment strategy conditional on the state of oil market volatility yields significantly positive excess returns even after adjusting for systematic risk exposures. The findings show that the predictive information captured by oil market fundamentals can be utilized in active sector rotation strategies.

Suggested Citation

  • Demirer, Riza & Yuksel, Aydin & Yuksel, Asli, 2020. "Oil price uncertainty, global industry returns and active investment strategies," The Journal of Economic Asymmetries, Elsevier, vol. 22(C).
    • Handle: RePEc:eee:joecas:v:22:y:2020:i:c:s1703494920300244
    DOI: 10.1016/j.jeca.2020.e00177
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    2. Elie Bouri & Rangan Gupta & Clement Kweku Kyei & Sowmya Subramaniam, 2020. "High-Frequency Movements of the Term Structure of Interest Rates of the United States: The Role of Oil Market Uncertainty," Working Papers 202085, University of Pretoria, Department of Economics.

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    More about this item

    Keywords

    Global sector indices; Oil volatility; Markov switching; Predictability;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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