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U.S. oil company stock returns and currency fluctuations

Andre Mollick (Department of Economics and Finance, University of Texas Pan American, Edinburg, Texas, USA)
Khoa H Nguyen (Department of Economics and Finance, The University of Texas Pan American, Edinburg, Texas, USA)

Managerial Finance

ISSN: 0307-4358

Article publication date: 14 September 2015

1685

Abstract

Purpose

The purpose of this is paper is to pay a closer look at the 2008-2009 financial crisis (and its aftermath) and analyzes stock returns of nine major US oil companies as well as the oil and gas sector under daily data from January 1992 to April 2012.

Design/methodology/approach

The authors adopt the arbitrage pricing theory model to examine the relationship between stock returns and their influences including oil price return, yield spreads, and US dollar index return. The authors also provide a test for structural changes in each regression model of return series to capture for multiple breaks. To examine the asymmetric effect of oil price returns on stock returns, the authors separate oil price returns series into two series: positive changes in oil price and negative changes in oil price.

Findings

The authors find stock returns of oil companies as well as the oil and gas sector are positively affected by oil prices and have stronger effects in the downward direction. Interestingly, The authors find the effects of oil price movements on stock returns increase over time. The authors examine the possibility that investors wishing to hedge against a weakening USD invest in US oil companies and find that more than half of these companies benefit from a weaker USD against the JPY, while all strongly benefit from a weaker USD against major currencies.

Originality/value

The authors employ daily data for two-decade period including the last global financial crisis. Due to the long-term period covered in this study, sequential Bai-Perron tests are used to detect structural breaks of stock return series. In addition, the data-dependent procedures result in good specifications throughout with white-noise processes in almost all cases.

Keywords

Acknowledgements

JEL Classification — F31, G15

Citation

Mollick, A. and Nguyen, K.H. (2015), "U.S. oil company stock returns and currency fluctuations", Managerial Finance, Vol. 41 No. 9, pp. 974-994. https://doi.org/10.1108/MF-02-2014-0029

Publisher

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Emerald Group Publishing Limited

Copyright © 2015, Emerald Group Publishing Limited

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