Exploration risk in international oil and gas shareholder returns

This paper focuses upon the oil and gas industry, examining the association between exploration activity risk and company shareholder returns. Using monthly returns data from 189 oil and gas companies between 1993 and 2013, we supplement the Fama– French approach with an industry-specific fundamental factor in order to capture company exposure to oil and gas exploration risk. Our results indicate that exploration risk contributes significantly to oil company excess returns throughout the period of our study. Moreover, we are unable to uncover asymmetric effects related to positive/negative oil price changes. The effects of the interaction between the variables of exploration and oil price are equally difficult to uncover.