Oil prices and UK industry-level stock returns |
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Authors: | Bing Xu |
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Institution: | 1. School of Management and Languages, Heriot-Watt University, Edinburgh, UKb.xu@hw.ac.uk |
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Abstract: | In this article, we study whether the behaviour of oil prices can be used as a reliable predictor for the disaggregated industry-level stock market indices. We find strong evidence for the relevance of changes in oil price as a predictor for the returns of UK industry portfolios, while this relevance is heterogeneous across industries. In an out-of-sample framework, we find that both the contemporaneous and lagged oil price changes do predict UK industry stock market returns. The predictive power is more transient for the latter case, and mostly appearing after allowing for time variation in the relative performance. In addition, we find some evidence of asymmetry in the oil–stock price relationships. |
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Keywords: | oil price shocks UK stock returns industry-level out-of-sample forecast asymmetric effect |
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