Facebook LinkedIn Twitter

IAEE Members and subscribers to The Energy Journal: Please log in to access the full text article or receive discounted pricing for this article.

Oil Risk in Oil Stocks

We assess the oil price sensitivities and oil risk premiums of NYSE listed oil & gas firms returns by using a two-step regression analysis under two different arbitrage pricing models. Thus, we apply the Fama and French (1992) factor returns in a study of oil stocks. In all, we find that the return of oil stocks is positively associated with the return of the market, the increase of the spot crude oil price, and negatively with the firm�s book-to-market ratio. The oil firms sensitivities to the market, the oil price and the book-to-market ratio are positively priced by the market under the integrated model. However, both the size and significance of the oil risk premium are unstable. This suggests that increases in the oil price impact on expectations about the oil stocks� future return. The positive oil risk premium may disappear as investors change their perception of the effect of oil price changes on stock returns.

Purchase ( $25 )

Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Energy Investment and Finance – Public and Private Risks, Risk Management

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
D81 - Criteria for Decision-Making under Risk and Uncertainty

Keywords: Oil Risk, Stock prices, oil and gas industry, APT model, oil prices

DOI: 10.5547/ISSN0195-6574-EJ-Vol29-No1-5

Published in Volume 29, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.