Oil price uncertainty, global industry returns and active investment strategies

Demirer R., Yüksel S. A., Yuksel A.

Journal of Economic Asymmetries, vol.22, 2020 (Scopus) identifier

  • Publication Type: Article / Article
  • Volume: 22
  • Publication Date: 2020
  • Doi Number: 10.1016/j.jeca.2020.e00177
  • Journal Name: Journal of Economic Asymmetries
  • Journal Indexes: Scopus, EconLit
  • Keywords: Global sector indices, Markov switching, Oil volatility, Predictability
  • TED University Affiliated: No

Abstract

© 2020 Elsevier B.V.This paper shows that time-varying oil return volatility predicts regime transitions across a majority of global stock sectors, particularly for durables, financials, industrials, oil & gas, telecommunications and utilities. Global stock sectors yield significantly higher returns during periods of low oil market uncertainty and an active, forward-looking investment strategy conditional on the state of oil market volatility yields significantly positive excess returns even after adjusting for systematic risk exposures. The findings show that the predictive information captured by oil market fundamentals can be utilized in active sector rotation strategies.