Oil Volatility Risk and Expected Stock Returns

Peter Christoffersen, Xuhui (Nick) Pan

Publikation: Working paperForskning

Abstrakt

After the financialization of commodity futures markets in 2004-05 oil volatility has become a strong predictor of returns and volatility of the overall stock market. Furthermore, stocks' exposure to oil volatility risk now drives the cross-section of expected returns. The difference in average return between the quintile of stocks with low exposure and high exposure to oil volatility is significant at 0.66% per month, and oil volatility risk carries a significant risk premium of -0.60% per month. In the post-financialization period, oil volatility risk is strongly related with various measures of funding liquidity constraints suggesting an economic channel for the effect.
OriginalsprogEngelsk
UdgivelsesstedAarhus
UdgiverAarhus Universitetsforlag
Antal sider54
DOI
StatusUdgivet - 2015
NavnCreates Research Paper
Nummer2015-6
NavnRotman School of Management Working Paper
Nummer2399677

Emneord

  • Option-implied volatility
  • Oil prices
  • Volatility risk
  • Cross-section
  • Factor- mimicking portfolios
  • Financial intermediaries.

Citationsformater