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Oil prices, earnings, and stock returns

Author

Listed:
  • Steve Crawford

    (University of Houston)

  • Garen Markarian

    (WHU)

  • Volkan Muslu

    (University of Houston)

  • Richard Price

    (University of Oklahoma)

Abstract

Research has failed to document a consistent association between oil prices and stock prices. We propose and examine whether that failure is due to the need to link oil price changes to firm-level changes in earnings and investments. We find that the impact of oil prices on a firm’s earnings and investments varies significantly by industry and by whether the firm is an oil producer or oil consumer. Nevertheless, firm fixed effects explain more than 10 times the variation between oil prices and a firm’s earnings and investments than industry and time fixed effects combined, indicating that aggregation by industry and time can mask the unique impact of oil prices on an individual firm’s earnings and investments. We also find that investors react more strongly to oil-related earnings than non-oil-related earnings, particularly for oil consumers. Investor reaction to oil-related earnings also spills over to the stock prices of industry peers. By providing a firm-level mapping of the impact of oil prices on earnings, investments, and stock prices, our paper extends studies that have examined the impact of oil prices on the aggregate economy and stock markets.

Suggested Citation

  • Steve Crawford & Garen Markarian & Volkan Muslu & Richard Price, 2021. "Oil prices, earnings, and stock returns," Review of Accounting Studies, Springer, vol. 26(1), pages 218-257, March.
    • Handle: RePEc:spr:reaccs:v:26:y:2021:i:1:d:10.1007_s11142-020-09556-7
    DOI: 10.1007/s11142-020-09556-7
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    References listed on IDEAS

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    3. Aktolkin Abubakirova & Lyazzat Kudabayeva & Aizhan Omarova & Zhanargul Taskinbaikyzy & Bibigul Saubetova, 2024. "Effects of Fluctuations in oil Prıces on G7 Country Stock Exchanges," International Journal of Energy Economics and Policy, Econjournals, vol. 14(4), pages 324-328, July.
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    6. Hasan, Mostafa Monzur & Asad, Suzona & Wong, Jin Boon, 2022. "Oil price uncertainty and corporate debt maturity structure," Finance Research Letters, Elsevier, vol. 46(PA).
    7. Wen, Fenghua & Chen, Meng & Zhang, Yun & Miao, Xiao, 2023. "Oil price uncertainty and audit fees: Evidence from the energy industry," Energy Economics, Elsevier, vol. 125(C).
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    9. Hammoudeh, Shawkat & Tripathi, Nitya Nand & Raj, Asha Binu & Tiwari, Aviral Kumar, 2024. "Oil price volatility and changes in corporate debt: An empirical study in the Indian landscape," The North American Journal of Economics and Finance, Elsevier, vol. 73(C).
    10. Koczar, Monika W. & Jareño, Francisco & Escribano, Ana, 2024. "Dynamic linkages and contagion effects: Analyzing the linkages between crude oil prices, US market sector indices and energy markets," The North American Journal of Economics and Finance, Elsevier, vol. 74(C).
    11. Zhang, Zongyi & Fan, Zhenjun, 2024. "Oil price uncertainty and corporate diversification: Evidence from Chinese manufacturing firms," International Review of Economics & Finance, Elsevier, vol. 92(C), pages 929-947.
    12. Zhang, Dongyang & Bai, Dingchuan & Chen, Xingyu, 2024. "Can crude oil futures market volatility motivate peer firms in competing ESG performance? An exploration of Shanghai International Energy Exchange," Energy Economics, Elsevier, vol. 129(C).
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    More about this item

    Keywords

    Oil Price; Commodity markets; Earnings; Financial markets;
    All these keywords.

    JEL classification:

    • G0 - Financial Economics - - General
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets

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