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Oil Price Shocks and the U.S. Stock Market: Do Sign and Size Matter?

Zeina Alsalman Ana María Herrera

Year: 2015
Volume: Volume 36
Number: Number 3
DOI: 10.5547/01956574.36.3.zals
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Abstract:
We investigate the effect of oil price innovations on the U.S. stock market using a model that nests symmetric and asymmetric responses to positive and negative oil price innovations. We find no evidence of asymmetry for aggregate stock returns, and only very limited evidence for 49 industry-level portfolios. Moreover, these asymmetries do not match up well with conventional views regarding en-ergy-dependent sectors of the economy. Instead, asymmetries are more likely driven by the effect of oil price innovations on expected and/or realized demand. We inquire whether the size of the shock matters in that doubling the size of the shock more (or less) than doubles the size of the response, finding that the effect of a 2.s.d innovation is just about double the magnitude of the impact of a 1.s.d innovation. Furthermore, we find no support for the conjecture that shocks that exceed a threshold have an asymmetric effect on stock returns.



Investor Attention to Fossil Fuel Divestment Movement and Stock Returns

Imane El Ouadghiri, Mathieu Gomes, Jonathan Peillex, and Guillaume Pijourlet

Year: 2022
Volume: Volume 43
Number: Number 6
DOI: 10.5547/01956574.43.6.ioua
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Abstract:
This study investigates whether the investor attention to the fossil fuel divestment (FFD) movement is related to the stock returns on firms involved in extracting fossil fuels. Three complementary indicators of investor attention to the FFD movement are considered: (1) the U.S. weekly Google Search Volume Index on the topic "fossil fuel divestment," (2) the U.S. weekly media coverage of fossil fuel divestment, and (3) the number of weekly visits to the "fossil fuel divestment" page on Wikipedia. Based on a sample of weekly returns on 1,850 U.S. firms over the period 2012–2020, our econometric estimations report a positive relationship between investor attention to FFD and excess stock returns for U.S. fossil fuel–related firms. Therefore, contrary to what the FFD campaigners might expect, the stigmatization of the fossil fuel industry does not drive down the stock returns on fossil fuel–related firms.



Systemic Risk in the Global Energy Sector: Structure, Determinants and Portfolio Management Implications

Syed Jawad Hussain Shahzad, Román Ferrer, Elie Bouri

Year: 2023
Volume: Volume 44
Number: Number 6
DOI: 10.5547/01956574.44.6.ssha
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Abstract:
We examine the dynamics of tail dependence across returns of 105 global energy firms from 26 countries covering the regions of America, Asia Pacific and Europe. A partial correlation-based approach is used to quantify the dependence structure and level of systemic risk under relatively stable and extremely bearish and bullish market conditions. The dependence network of energy stock returns is constructed based on the novel triangulated maximally filtered graph (TMFG). The results reveal a high degree of tail dependence and role played by geographical proximity. The strongest links are found under extreme bearish market conditions. American and European energy firms are more interconnected and contribute more to systemic risk than Asian-Pacific companies. The dependence intensifies during periods of market turmoil, especially during the COVID-19 pandemic. A higher instability in the dependence structure is observed during extremely bearish market circumstances. A simple portfolio trading strategy based on the dependence ranking of energy firms outperforms a naïve equally-weighted buy-and-hold portfolio strategy.





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