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Oil Risk in Oil Stocks

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  • Bert Scholtens
  • Lei Wang

Abstract

We assess the oil price sensitivities and oil risk premiums of NYSE listed oil & gas firms’ returns by using a two-step regression analysis under two different arbitrage pricing models. Thus, we apply the Fama and French (1992) factor returns in a study of oil stocks. In all, we find that the return of oil stocks is positively associated with the return of the market, the increase of the spot crude oil price, and negatively with the firm’s book-to-market ratio. The oil firms’ sensitivities to the market, the oil price and the book-to-market ratio are positively priced by the market under the integrated model. However, both the size and significance of the oil risk premium are unstable. This suggests that increases in the oil price impact on expectations about the oil stocks’ future return. The positive oil risk premium may disappear as investors change their perception of the effect of oil price changes on stock returns.

Suggested Citation

  • Bert Scholtens & Lei Wang, 2008. "Oil Risk in Oil Stocks," The Energy Journal, , vol. 29(1), pages 89-112, January.
    • Handle: RePEc:sae:enejou:v:29:y:2008:i:1:p:89-112
    DOI: 10.5547/ISSN0195-6574-EJ-Vol29-No1-5
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    Cited by:

    1. Andriosopoulos, Kostas & Nomikos, Nikos, 2014. "Performance replication of the Spot Energy Index with optimal equity portfolio selection: Evidence from the UK, US and Brazilian markets," European Journal of Operational Research, Elsevier, vol. 234(2), pages 571-582.
    2. Sklavos, Konstantinos & Dam, Lammertjan & Scholtens, Bert, 2013. "The liquidity of energy stocks," Energy Economics, Elsevier, vol. 38(C), pages 168-175.
    3. Josef Pavlata & Petr Strejček & Peter Albrecht & Martin Širůček, 2021. "The Empirical Linkage between Oil Prices and the Stock Returns of Oil Companies," European Journal of Business Science and Technology, Mendel University in Brno, Faculty of Business and Economics, vol. 7(2), pages 186-197.
    4. Ramos, Sofía B. & Veiga, Helena, 2012. "Asymmetric long-run effects in the oil industry," DES - Working Papers. Statistics and Econometrics. WS ws120502, Universidad Carlos III de Madrid. Departamento de Estadística.
    5. Puah, Chin-Hong & Tan, Lay-Phin & Md Isa, Abu Hassan, 2009. "Nexus between Oil Price and Stock Performance of Power Industry in Malaysia," MPRA Paper 31757, University Library of Munich, Germany.
    6. Mohamed Amine BOUTABA, 2009. "Does Carbon Affect European Oil Companies' Equity Values?," EcoMod2009 21500018, EcoMod.
    7. Pal, Debdatta & Mitra, Subrata K., 2019. "Oil price and automobile stock return co-movement: A wavelet coherence analysis," Economic Modelling, Elsevier, vol. 76(C), pages 172-181.
    8. Stavros Degiannakis, George Filis, and Vipin Arora, 2018. "Oil Prices and Stock Markets: A Review of the Theory and Empirical Evidence," The Energy Journal, International Association for Energy Economics, vol. 0(Number 5).
    9. Ahmadi, Maryam & Manera, Matteo & Sadeghzadeh, Mehdi, 2016. "Global oil market and the U.S. stock returns," Energy, Elsevier, vol. 114(C), pages 1277-1287.
    10. Mohammad Enamul Hoque & Soo-Wah Low, 2020. "Industry Risk Factors and Stock Returns of Malaysian Oil and Gas Industry: A New Look with Mean Semi-Variance Asset Pricing Framework," Mathematics, MDPI, vol. 8(10), pages 1-28, October.
    11. Zhu, Bo & Liu, Jiahao & Lin, Renda & Chevallier, Julien, 2021. "Cross-border systemic risk spillovers in the global oil system: Does the oil trade pattern matter?," Energy Economics, Elsevier, vol. 101(C).
    12. Scholtens, Bert & Boersen, Arieke, 2011. "Stocks and energy shocks: The impact of energy accidents on stock market value," Energy, Elsevier, vol. 36(3), pages 1698-1702.
    13. Rehman, Mobeen Ur, 2019. "Energy shocks pricing model: A non-linear US sectoral based analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 535(C).
    14. Misund, Bård, 2015. "Reserves Replacement and Oil and Gas Company Shareholder returns," UiS Working Papers in Economics and Finance 2015/11, University of Stavanger.
    15. An, Haizhong & Gao, Xiangyun & Fang, Wei & Ding, Yinghui & Zhong, Weiqiong, 2014. "Research on patterns in the fluctuation of the co-movement between crude oil futures and spot prices: A complex network approach," Applied Energy, Elsevier, vol. 136(C), pages 1067-1075.
    16. Mohmmad Enamul Hoque & Soo Wah Low & Mohd Azlan Shah Zaidi, 2020. "Do Oil and Gas Risk Factors Matter in the Malaysian Oil and Gas Industry? A Fama-MacBeth Two Stage Panel Regression Approach," Energies, MDPI, vol. 13(5), pages 1-15, March.
    17. Nurkhodzha Akbulaev & Imangulu Muradzada & Ziyadhan Hasanov, 2023. "Relationship between Oil Prices and Russia Exchange Indices: Analysis of Frequency Causality," International Journal of Energy Economics and Policy, Econjournals, vol. 13(5), pages 607-615, September.
    18. Zhaobo Zhu & Licheng Sun & Jun Tu & Qiang Ji, 2022. "Oil price shocks and stock market anomalies," Financial Management, Financial Management Association International, vol. 51(2), pages 573-612, June.
    19. Charoula Daskalaki, 2021. "New evidence on commodity stocks," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(6), pages 811-874, June.
    20. Zahid Iqbal, 2015. "CEO age, education, and introduction of hedging in the oil and gas industry," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 39(1), pages 189-200, January.
    21. Salas-Fumás, Vicente & Rosell-Martínez, Jorge & Delgado-Gómez, José Manuel, 2016. "Capacity, investment and market power in the economic value of energy firms," Energy Economics, Elsevier, vol. 53(C), pages 28-39.
    22. Martín-Barragán, Belén & Ramos, Sofia B. & Veiga, Helena, 2015. "Correlations between oil and stock markets: A wavelet-based approach," Economic Modelling, Elsevier, vol. 50(C), pages 212-227.
    23. Šoba, Oldřich & Širůček, Martin & Havíř, Tomáš, 2013. "Závislost cen akcií ropných společností na ceně ropy [The dependence of oil company's stock price on oil price]," MPRA Paper 62899, University Library of Munich, Germany, revised 2013.
    24. Zhu, Bo & Lin, Renda & Liu, Jiahao, 2020. "Magnitude and persistence of extreme risk spillovers in the global energy market: A high-dimensional left-tail interdependence perspective," Energy Economics, Elsevier, vol. 89(C).
    25. Imane El Ouadghiri & Mathieu Gomes & Jonathan Peillex & Guillaume Pijourlet, 2022. "Investor Attention to the Fossil Fuel Divestment Movement and Stock Returns," Post-Print hal-03549713, HAL.

    More about this item

    Keywords

    Oil Risk; Stock prices; oil and gas industry; APT model; oil prices;
    All these keywords.

    JEL classification:

    • F0 - International Economics - - General

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