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Has oil price predicted stock returns for over a century?

journal contribution
posted on 2015-03-01, 00:00 authored by Paresh Narayan, R Gupta
This paper contributes to the debate on the role of oil prices in predicting stock returns. The novelty of the paper is that it considers monthly time-series historical data that span over 150. years (1859:10-2013:12) and applies a predictive regression model that accommodates three salient features of the data, namely, a persistent and endogenous oil price, and model heteroscedasticity. Three key findings are unraveled: first, oil price predicts US stock returns. Second, in-sample evidence is corroborated by out-sample evidence of predictability. Third, both positive and negative oil price changes are important predictors of US stock returns, with negative changes relatively more important. Our results are robust to the use of different estimators and choice of in-sample periods.

History

Journal

Energy Economics

Volume

48

Pagination

18 - 23

Publisher

Elsevier

Location

Amsterdam, The Netherlands

ISSN

0140-9883

Language

eng

Publication classification

C1 Refereed article in a scholarly journal; C Journal article

Copyright notice

2015, Elsevier