Oil prices changes and volatility in sector stock returns: Evidence from Australia, New Zealand, China, Germany and Norway

The paper examines the exposure of sectoral stock returns to oil price changes in Australia, China, Germany, New Zealand and Norway over the period 2000-2015 using weekly data drawn from DataStream. The issue of volatility has important implications for the theory of finance and as is well-known accurate volatility forecasts are important in a variety of settings including option and other derivatives pricing, portfolio and risk management (e.g. in the calculation of hedge ratios and Value-at-Risk measures), and trading strategies (David and Ruiz, 2009). This study adopts GARCH and EGARCH to understand the relationship between the returns and volatility. The findings using GARCH (EGARCH) models suggests that in the case of Germany eight (nine) out of ten sectors returns can be explained by the volatility of past oil price in Germany, while in the case of Australia, six (seven) out of ten sector returns are sensitive to the oil price changes with the exception of Industrials, Consumer Goods, Health care and Utilities. While in China and New Zealand five sectors are found sensitive to oil price changes and three sectors in Norway, namely Oil & Gas, Consumer Services and Financials. Secondly, this paper also investigated the exposure of the stock returns to oil price changes using market index data as a proxy using GARCH or EGARCH model. The results indicated that the stock returns are sensitive to the oil price changes and have leverage effects for all the five countries. Further, the findings also suggests that sector with more constituents is likely to have leverage effects and vice versa. The results have implications to market participants to make informed decisions about a better portfolio diversification for minimizing risk and adding value to the stocks.

Download Full-text

The Impact of Oil Price Fluctuations on Industry Stock Returns: Evidence from International Markets

Journal of Management Info ◽

10.31580/jmi.v5i1.26 ◽

2018 ◽

Vol 5 (1) ◽

pp. 1-12

Author(s):

Elias Randjbaran ◽

Reza Tahmoorespour ◽

Marjan Rezvani ◽

Meysam Safari

Keyword(s):

Stock Returns ◽

Oil And Gas ◽

Negative Relationship ◽

The United States ◽

Oil Price ◽

Price Variation ◽

Price Changes ◽

Price Fluctuations ◽

Food And Beverage ◽

The Impact

This study investigates the impact of oil price variation on 14 industries in six markets, including Canada, China, France, India, the United Kingdom, and the United States. Panel weekly data were collected from June 1998 to December 2011. The results indicate that price fluctuations primarily affect the Oil and Gas as well as the Mining industries and have the least influence on the Food and Beverage industry. Furthermore, in three out of six of these countries (Canada, France, and the U.K.), oil price changes negatively affect the Pharmaceutical and Biotechnology industry. One possible reason for the negative relationship between oil price changes and the Pharmaceutical and Biotechnology industries in the above-mentioned countries is that the governments of these countries fund their healthcare systems. Portfolio managers and investors will find the results of this study useful because it enables adjusting portfolios based on knowledge of the industries that are impacted the most or the least by oil price fluctuations.

Download Full-text

On the ability of New Zealand actively managed funds to generate outperformance in their domestic equity allocations

Pacific Accounting Review ◽

10.1108/par-10-2017-0079 ◽

2018 ◽

Vol 30 (4) ◽

pp. 463-481 ◽

Cited By ~ 1

Author(s):

Bart Frijns ◽

Ivan Indriawan

Keyword(s):

New Zealand ◽

Stock Returns ◽

Tracking Error ◽

Tracking Errors ◽

Content Type ◽

Portfolio Holdings ◽

Market Index ◽

Stock Picking ◽

Fund Size ◽

Managed Funds

Purpose This paper aims to assess the ability of New Zealand (NZ) actively managed funds to generate risk-adjusted outperformance using portfolio holdings data. Focusing on domestic equity allocations addresses the benchmark selection issue, particularly for funds with national and international exposures. Design/methodology/approach The authors assess performance using several asset pricing models including the CAPM, three-factor and four-factor models. The authors also assess performance across funds with different characteristics such as fund size, size of local holdings, type of fund provider, past returns and fees. The authors further examine whether funds engage in any stock-picking or market timing by considering the active share and tracking error. Findings The returns on NZ equity holdings of NZ actively managed funds from 2010 to 2017 provide little evidence of risk-adjusted outperformance and stock-picking skill. These exposures yield pre-cost returns that have a nearly perfect correlation with the market index and an insignificant alpha. Funds show little tendency to bet on any of the main characteristics known to predict stock returns, such as size, book-to-market and momentum. In addition, the authors show that the average active shares and tracking errors are low, suggesting that the majority of funds hold NZ equity portfolios that closely mimic the market index. Originality/value Existing studies rely on returns data which aggregate performance across all asset classes with varying exposures. This may lead to benchmark selection issues (particularly for funds with international exposures) which may obscure the fund manager’s true stock-picking skills. Assessment using holdings data would enable suitable performance measurement by researchers and industry analysts.

Download Full-text

Is There an Intertemporal Relation between Downside Risk and Expected Returns?

Journal of Financial and Quantitative Analysis ◽

10.1017/s0022109009990159 ◽

2009 ◽

Vol 44 (4) ◽

pp. 883-909 ◽

Cited By ~ 159

Author(s):

Turan G. Bali ◽

K. Ozgur Demirtas ◽

Haim Levy

Keyword(s):

Stock Returns ◽

Value At Risk ◽

Risk Measures ◽

Downside Risk ◽

Expected Returns ◽

Significant Relation ◽

Macroeconomic Variables ◽

Portfolio Returns ◽

Risk Return ◽

Expected Stock Returns

AbstractThis paper examines the intertemporal relation between downside risk and expected stock returns. Value at Risk (VaR), expected shortfall, and tail risk are used as measures of downside risk to determine the existence and significance of a risk-return tradeoff. We find a positive and significant relation between downside risk and the portfolio returns on NYSE/AMEX/Nasdaq stocks. VaR remains a superior measure of risk when compared with the traditional risk measures. These results are robust across different stock market indices, different measures of downside risk, loss probability levels, and after controlling for macroeconomic variables and volatility over different holding periods as originally proposed by Harrison and Zhang (1999).

Download Full-text

Is there an asymmetry in the response of diesel and petrol prices to crude oil price changes? Evidence from New Zealand

Energy Economics ◽

10.1016/j.eneco.2009.12.008 ◽

2010 ◽

Vol 32 (4) ◽

pp. 926-932 ◽

Cited By ~ 28

Author(s):

Ming-Hua Liu ◽

Dimitris Margaritis ◽

Alireza Tourani-Rad

Keyword(s):

New Zealand ◽

Crude Oil ◽

Oil Price ◽

Crude Oil Price ◽

Price Changes

Download Full-text

Oil price risk in the Eurozone: a sectoral analysis

Problems and Perspectives in Management ◽

10.21511/ppm.15(3).2017.09 ◽

2017 ◽

Vol 15 (3) ◽

pp. 108-118 ◽

Cited By ~ 1

Author(s):

Olfa Belhassine ◽

Amira Ben Bouzid

Keyword(s):

Stock Market ◽

Stock Returns ◽

Debt Crisis ◽

Oil Price ◽

Market Model ◽

Additional Risk Factor ◽

Subprime Crisis ◽

Price Changes ◽

Negative Effect ◽

The Relationship

This study investigates how oil price movements impact the main Eurozone industry supersectors returns. We use a multifactor market model in which we incorporate oil price changes as an additional risk factor. In order to account for possible breaks in the relationship, we use the Bai and Perron (1998, 2003) breakpoints identification methodology. We find evidence of the presence of structural instabilities on the relationship between sector stock returns and oil price changes. Different breakpoints are identified, particularly the 2003 Iraq invasion year, the 2008 subprime crisis and the 2012 Euro debt crisis. Moreover, our results prove that stock return sensitivities to oil prices are time varying and sector dependent. Besides, the subprime financial crisis appears to induce a significantly positive effect on the oil-stock market nexus. However, the Euro debt crisis has a mostly negative effect. The other identified breakpoints do not seem to have any significant effect on the oil stock market nexus.

Download Full-text

Oil Price Based Trading And European Industry Sector Stocks

International Business & Economics Research Journal (IBER) ◽

10.19030/iber.v11i2.6775 ◽

2012 ◽

Vol 11 (2) ◽

pp. 205

Author(s):

Michael Soucek

Keyword(s):

Stock Returns ◽

Oil Price ◽

Expected Return ◽

Price Changes ◽

Industry Sector ◽

Price Series ◽

Individual Industry ◽

European Industry ◽

Sharpe Ratios ◽

Industry Sectors

This study shows that the relationship between oil price changes and European stock market is significant and vary in relation to individual industry sectors. The oil price changes exhibit significant Granger causality for majority of European industry sector stock returns, but no cointegration could be determined for the price series. The results are proved to be economically exploitable for trading strategies. The trading rule based on the bivariate VAR( ) model for forecasting future stock returns significantly outperforms the buy-and-hold strategy in term of expected return and risk. It yields large Sharpe ratios and significant positive Jensen's alpha for both weekly and monthly data.

Download Full-text