Department of Economics and Business Economics

Oil volatility risk and expected stock returns

Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaperJournal articleResearchpeer-review

Standard

Oil volatility risk and expected stock returns. / Christoffersen, Peter Frederik; Pan, Xuhui (Nick).

In: Journal of Banking & Finance, Vol. 95, No. October, 10.2018, p. 5-26.

Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaperJournal articleResearchpeer-review

Harvard

Christoffersen, PF & Pan, XN 2018, 'Oil volatility risk and expected stock returns', Journal of Banking & Finance, vol. 95, no. October, pp. 5-26. https://doi.org/10.1016/j.jbankfin.2017.07.004

APA

Christoffersen, P. F., & Pan, X. N. (2018). Oil volatility risk and expected stock returns. Journal of Banking & Finance, 95(October), 5-26. https://doi.org/10.1016/j.jbankfin.2017.07.004

CBE

Christoffersen PF, Pan XN. 2018. Oil volatility risk and expected stock returns. Journal of Banking & Finance. 95(October):5-26. https://doi.org/10.1016/j.jbankfin.2017.07.004

MLA

Christoffersen, Peter Frederik and Xuhui (Nick) Pan. "Oil volatility risk and expected stock returns". Journal of Banking & Finance. 2018, 95(October). 5-26. https://doi.org/10.1016/j.jbankfin.2017.07.004

Vancouver

Christoffersen PF, Pan XN. Oil volatility risk and expected stock returns. Journal of Banking & Finance. 2018 Oct;95(October):5-26. https://doi.org/10.1016/j.jbankfin.2017.07.004

Author

Christoffersen, Peter Frederik ; Pan, Xuhui (Nick). / Oil volatility risk and expected stock returns. In: Journal of Banking & Finance. 2018 ; Vol. 95, No. October. pp. 5-26.

Bibtex

@article{7a8840728e30483dbe81ba8ffaca8a28,
title = "Oil volatility risk and expected stock returns",
abstract = "After the financialization of commodity futures markets in 2004–2005 oil volatility has become a strong predictor of returns and volatility of the overall stock market. Furthermore, stocks{\textquoteright} 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 versus 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. We also find that increases in oil price uncertainty predict tightening funding constraints of financial intermediaries suggesting a link between oil volatility risk and the stock market.",
keywords = "Cross-section, Factor-mimicking portfolios, Financial intermediaries, Oil prices, Option-implied volatility, Volatility risk",
author = "Christoffersen, {Peter Frederik} and Pan, {Xuhui (Nick)}",
year = "2018",
month = oct,
doi = "10.1016/j.jbankfin.2017.07.004",
language = "English",
volume = "95",
pages = "5--26",
journal = "Journal of Banking & Finance",
issn = "0378-4266",
publisher = "Elsevier BV",
number = "October",

}

RIS

TY - JOUR

T1 - Oil volatility risk and expected stock returns

AU - Christoffersen, Peter Frederik

AU - Pan, Xuhui (Nick)

PY - 2018/10

Y1 - 2018/10

N2 - After the financialization of commodity futures markets in 2004–2005 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 versus 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. We also find that increases in oil price uncertainty predict tightening funding constraints of financial intermediaries suggesting a link between oil volatility risk and the stock market.

AB - After the financialization of commodity futures markets in 2004–2005 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 versus 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. We also find that increases in oil price uncertainty predict tightening funding constraints of financial intermediaries suggesting a link between oil volatility risk and the stock market.

KW - Cross-section

KW - Factor-mimicking portfolios

KW - Financial intermediaries

KW - Oil prices

KW - Option-implied volatility

KW - Volatility risk

UR - http://www.scopus.com/inward/record.url?scp=85026872153&partnerID=8YFLogxK

U2 - 10.1016/j.jbankfin.2017.07.004

DO - 10.1016/j.jbankfin.2017.07.004

M3 - Journal article

VL - 95

SP - 5

EP - 26

JO - Journal of Banking & Finance

JF - Journal of Banking & Finance

SN - 0378-4266

IS - October

ER -