Oil Price, Stock Market and Portfolio Investment

8/2/2019 Oil Price, Stock Market and Portfolio Investment

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Oil price, stock

market and portfolio

investment

Iman

Yashar

NOV 2011


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Introduction Changing of oil price in recent years

Oil price fluctuation may affect stock returns

Discounted cash-flows reflect economic conditions(inflation rate, interest rate, production cost, income and

economic growth) There has been large volume of works on the linkage

between oil price and economic variable, But a fewstudies about dynamic relationship between oil price and

stock market


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Reaction of stock returns in four developedcountries(US,UK,JAPAN,CANADA)

Reaction of oil-exporting countries like

Norway

Literature Review


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Summarized Results

Oil price increases

negatively affect sector returns in three cases(Food and Beverages, Health care and technology)

Positively affect sector returns in five cases(Financials, Oil and Gas, Industrial, BasicMaterials and consumer services)

No relationship between oil price changes andstuck return for three European sectors (Personaland household Goods, Telecommunications,Utilities)


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Some portfolio implications of the results

Strong significant linkages between oil price changes andstock market for most European sectors.

Out of sample reveal two important point:

1. Model with oil price changes provide better forecastsof stock returns.

2. Inclusion oil into a portfolio of stocks significantlyimproves its risk-return characteristic.


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conclusion

traders who are interested in investing in oilsensitive stocks in Europe may:

1. when oil prices are expected to increase, select

stocks from sectors, such as Oil and Gas, withhigh positive sensitivity to oil prices.

2. Alternatively, when oil price is expected todecrease, they may select sectors with negative

sensitivity such as Food and Beverages.3. Investors and portfolio managers should

rebalance their portfolio in keeping with theirviews of the sign of changes in oil prices.


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references -Mohamed El HediArouri, Duc Khuong Nguyen, Oil prices,

stock markets and portfolio investment,Energy Policy ,38(2010) 45284539.

-Chien-Chiang Lee, Jhih-Hong Zeng, The impact of oil priceshocks on stock market activities,Mathematics and

Computers in Simulation, 81 (2011) 19101920. -Salman Saif Ghouri, Assessment of the relationship between

oil prices and US oil stocks,Energy Policy, 34 (2006) 33273333.

-Sunil K. Mohanty, Mohan Nandha, Abdullah Q. Turkistani,Muhammed Y. Alaitani, Oil price movements and stockmarket returns, Global Finance Journal,22 (2011) 4255.

-Mohamed El Hedi Arouri, Amine Lahiani, Duc KhuongNguyen, Return and volatility transmission between world oilprices and stock markets of the GCC countries,EconomicModeling, 28 (2011) 18151825


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Oil Price, Stock Market and Portfolio Investment

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