File(s) under permanent embargo
Panel evidence on the ability of oil returns to predict stock returns in the G7 area
journal contribution
posted on 2019-01-01, 00:00 authored by Joakim WesterlundJoakim Westerlund, Susan SharmaSusan SharmaMost studies on the ability of oil returns to predict stock returns use time series data for multiple countries. The data therefore have a panel structure. Yet, oddly enough, this structure is never really exploited in the estimation, but researchers tend to instead rely on country-by-country application of existing time series methods. This practice is wasteful, because it does not explore all available information. The present paper can be seen as a reaction to this. The purpose is to reevaluate the existing empirical evidence for the G7 countries using state-of-the-art panel data techniques. The results show that for the panel as a whole lagged oil price returns has a significantly negative effect on current stock returns. The evidence at the individual country level is less strong and varies depending on the extent to which the countries rely on oil import.