Oil volatility risk and expected stock returns

After the financialization of commodity futures markets in 2004-05 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 and 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. In the post-financialization period, oil volatility risk is strongly related with various measures of funding liquidity constraints suggesting an economic channel for the effect.

• Publication year

  2018

• Venue

  Journal of Banking & Finance

• Publication date

  2018-10-01

• Fields of study

  Economics

• Identifiers
  DOI 10.1016/j.jbankfin.2017.07.004
• External record

  Open on Semantic Scholar

• Source metadata

  Semantic Scholar

• In the post-financialization period, oil volatility risk is strongly related to funding liquidity constraints, pointing to an economic channel for the effect.

  Confidence 0.91

  박진우 (dztg5apj7m) extractionB (s683577b42) reviewq (76h6bfydm6) review
• The return spread between low- and high-exposure stock quintiles is 0.66% per month, and oil volatility risk carries a -0.60% per month risk premium.

  Confidence 0.93

  박진우 (dztg5apj7m) extractionB (s683577b42) reviewq (76h6bfydm6) review
• Stocks' exposure to oil volatility risk drives the cross-section of expected stock returns.

  Confidence 0.95

  박진우 (dztg5apj7m) extractionB (s683577b42) reviewq (76h6bfydm6) review
• After the 2004-05 financialization of commodity futures markets, oil volatility becomes a strong predictor of overall stock market returns and volatility.

  Confidence 0.96

  박진우 (dztg5apj7m) extractionB (s683577b42) reviewq (76h6bfydm6) review

• expected stock returns

  financial measure

  The average or anticipated return on stocks used in the cross-sectional analysis.

  Aliases: stock expected returns

  박진우 (dztg5apj7m) extractionB (s683577b42) reviewq (76h6bfydm6) review
• financialization of commodity futures markets

  market phenomenon

  The increased participation of financial investors in commodity futures markets beginning in the mid-2000s.

  Aliases: commodity futures financialization

  박진우 (dztg5apj7m) extractionB (s683577b42) reviewq (76h6bfydm6) review
• funding liquidity constraints

  financial constraint

  Limits on the ease with which investors or intermediaries can obtain funding or financing.

  Aliases: funding liquidity, liquidity constraints

  박진우 (dztg5apj7m) extractionB (s683577b42) reviewq (76h6bfydm6) review
• oil volatility

  financial measure

  The time-varying uncertainty in oil prices used as a predictor in the paper.

  Aliases: oil price volatility

  박진우 (dztg5apj7m) extractionB (s683577b42) reviewq (76h6bfydm6) review
• oil volatility risk

  risk factor

  Risk associated with exposure to fluctuations in oil volatility.

  Aliases: oil volatility-related risk

  박진우 (dztg5apj7m) extractionB (s683577b42) reviewq (76h6bfydm6) review
• post-financialization period

  time period

  The period after the rise in commodity-futures financialization that is used for the paper's main post-break analysis.

  Aliases: post-2004-05 period

  박진우 (dztg5apj7m) extractionB (s683577b42) reviewq (76h6bfydm6) review
• risk premium

  financial measure

  The compensation in returns associated with bearing a particular risk exposure.

  Aliases: expected return premium

  박진우 (dztg5apj7m) extractionB (s683577b42) reviewq (76h6bfydm6) review
• stock exposure to oil volatility risk

  risk measure

  The extent to which an individual stock's returns load on oil volatility risk.

  Aliases: exposure to oil volatility risk, oil volatility beta

  박진우 (dztg5apj7m) extractionB (s683577b42) reviewq (76h6bfydm6) review
• stock market returns

  market measure

  The realized returns of the overall stock market examined as an outcome in the paper.

  Aliases: overall stock market returns, market returns

  박진우 (dztg5apj7m) extractionB (s683577b42) reviewq (76h6bfydm6) review
• stock market volatility

  market measure

  The time-varying volatility of the overall stock market examined as an outcome in the paper.

  Aliases: market volatility

  박진우 (dztg5apj7m) extractionB (s683577b42) reviewq (76h6bfydm6) review

• Oil Prices and the Stock Market

  2018cited by this paper
• Indirect inference with time series observed with error

  2018cited by this paper
• Equilibrium commodity prices with irreversible investment and non-linear technologies

  2018cited by this paper
• WEAK DIFFUSION LIMITS OF DYNAMIC CONDITIONAL CORRELATION MODELS

  2017cited by this paper
• Does Variance Risk Have Two Prices? Evidence from the Equity and Option Markets

  2015cited by this paper
• EFFECTS OF INDEX-FUND INVESTING ON COMMODITY FUTURES PRICES: COMMODITY FUTURES PRICES

  2015cited by this paper
• A Model of Financialization of Commodities

  2015cited by this paper
• Estimating Oil Risk Factors Using Information from Equity and Derivatives Markets: Estimating Oil Risk Factors from Equity and Derivatives Markets

  2015cited by this paper
• New Evidence on the Financialization of Commodity Markets

  2015cited by this paper
• Explosive bubbles in house prices? Evidence from the OECD countries

  2015cited by this paper
• On the Selection of Common Factors for Macroeconomic Forecasting

  2015cited by this paper
• The Risk Premia Embedded in Index Options

  2015cited by this paper
• A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix

  2014cited by this paper
• Equity Portfolio Management Using Option Price Information

  2014cited by this paper
• The Effect of Uncertainty on Investment: Evidence from Texas Oil Drilling

  2014cited by this paper
• Testing the maximal rank of the volatility process for continuous diffusions observed with noise

  2014cited by this paper
• Investor Flows and the 2008 Boom/Bust in Oil Prices

  2014cited by this paper
• The Financialization of Commodity Markets

  2014cited by this paper
• Roughing up Beta: Continuous vs. Discontinuous Betas, and the Cross-Section of Expected Stock Returns

  2014cited by this paper
• Inference in High-dimensional Dynamic Panel Data Models

  2014cited by this paper
• Dynamic term structure models: The best way to enforce the zero lower bound

  2014cited by this paper
• Effects of Index-Fund Investing on Commodity Futures Prices

  2014cited by this paper
• Financial Intermediaries and the Cross-Section of Asset Returns: Financial Intermediaries and the Cross-Section of Asset Returns

  2014cited by this paper
• On spectral distribution of high dimensional covariation matrices

  2014cited by this paper
• The importance of the volatility risk premium for volatility forecasting

  2014cited by this paper
• Market Skewness Risk and the Cross-Section of Stock Returns

  2013cited by this paper
• Risk Premia in Crude Oil Futures Prices

  2013cited by this paper
• Ex Ante Skewness and Expected Stock Returns

  2013cited by this paper
• Oil and Macroeconomy

  2013cited by this paper
• Daily House Price Indexes: Construction, Modeling, and Longer-Run Predictions

  2013cited by this paper
• Bond Liquidity Premia

  2012cited by this paper
• Index Investment and the Financialization of Commodities

  2012cited by this paper
• Realized volatility forecasting and market microstructure noise

  2011cited by this paper
• Risk, Uncertainty, and Expected Returns

  2011cited by this paper
• The Stock Market Price of Commodity Risk

  2011cited by this paper
• The Price of Oil Risk

  2011cited by this paper
• What Does the Individual Option Volatility Smirk Tell Us About Future Equity Returns?

  2010cited by this paper
• Betting Against Beta

  2010cited by this paper
• Hedge Fund Contagion and Liquidity Shocks

  2010cited by this paper
• Limits to Arbitrage and Hedging: Evidence from Commodity Markets

  2009cited by this paper
• The Impact of Uncertainty Shocks

  2009cited by this paper
• Understanding volatility dynamics in the EU-ETS market

  2009cited by this paper
• The Impact of Oil Price Shocks on the U.S. Stock Market

  2009cited by this paper
• Unspanned Stochastic Volatility and the Pricing of Commodity Derivatives

  2009cited by this paper
• Market liquidity and funding liquidity

  2009cited by this paper
• A Simple Approximate Long-Memory Model of Realized Volatility

  2008cited by this paper
• Computing the Market Price of Volatility Risk in the Energy Commodity Markets

  2008cited by this paper
• Oil Futures Prices in a Production Economy with Investment Constraints

  2008cited by this paper
• Fundamentals, Trader Activity and Derivative Pricing

  2008cited by this paper
• The role of implied volatility in forecasting future realized volatility and jumps in foreign exchange, stock, and bond markets

  2007cited by this paper
• The Economic Effects of Energy Price Shocks

  2007cited by this paper
• Systematic Risk and the Price Structure of Individual Equity Options

  2007cited by this paper
• Expected stock returns and variance risk premia

  2007cited by this paper
• The Cross-Section of Volatility and Expected Returns

  2006cited by this paper
• A Tale of Two Time Scales

  2005cited by this paper
• Optimal positioning in derivative securities

  2001cited by this paper
• Stock Return Characteristics, Skew Laws, and the Differential Pricing of Individual Equity Options

  2001cited by this paper
• Spanning and Derivative-Security Valuation

  2000cited by this paper
• Stock Return Characteristics, Skew Laws, and the Di erential Pricing of Individual Equity Options

  2000cited by this paper
• Inflation, Asset Prices, and the Term Structure of Interest Rates in Monetary Economies

  1996cited by this paper
• OIL AND THE STOCK MARKETS

  1996cited by this paper
• Energy Shocks and Financial Markets

  1996cited by this paper
• The Risk and Predictability of International Equity Returns

  1993cited by this paper
• Common risk factors in the returns on stocks and bonds

  1993cited by this paper
• Permanent and Temporary Components of Stock Prices

  1988cited by this paper
• Why Does Stock Market Volatility Change Over Time

  1988cited by this paper
• Efficient Analytic Approximation of American Option Values

  1987cited by this paper
• Economic Forces and the Stock Market

  1986cited by this paper
• Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis

  1980cited by this paper
• Risk, Return, and Equilibrium: Empirical Tests

  1973influential reference
• AN INTERTEMPORAL CAPITAL ASSET PRICING MODEL

  1973cited by this paper
• The New Palgrave Dictionary of Economics Online multilingualism

  year unknowncited by this paper

• Does the transition to the proof-of-stake consensus protocol tame the response of cryptocurrency volatility to energy shocks?

  2026cites this paper
• Does international oil price risk affect the corporate propensity to save? Evidence from China

  2026cites this paper
• Volatility trading with the quadratic normal model in the oil options market

  2026cites this paper
• Oil price uncertainty shock and Korean sectoral stock market: The role of common factor and asymmetry

  2025cites this paper
• OPEC News and Volatility Expectations

  2025cites this paper
• Oil Shocks and the Financial Markets: A Review

  2025cites this paper
• Gold Jump Risk, Rare Macroeconomic Disaster Probability, and Expected Stock Returns

  2025cites this paper
• Exploring the Cost of Carry in Chinese Energy Futures: Does It Interact with the Energy Stock Market?

  2025cites this paper
• Multi‐Factor Models of Asset Returns: A Bibliometric Analysis

  2025cites this paper
• Cross-border banking and the transmission of global shocks to credit cycles in developing economies: A commodity price cycles channel

  2025cites this paper
• Numerical methods for option valuation: A bibliometric review of current trends to future directions

  2025cites this paper
• Stock-oil comovements through fear, uncertainty, and expectations: Evidence from conditional comoments

  2024cites this paper
• Metal and energy price uncertainties and the global economy

  2024cites this paper
• Implied roughness in the term structure of oil market volatility

  2024cites this paper
• Asymmetric dynamics between cryptocurrency uncertainty and the oil and gold markets: evidence from Granger causality in quantiles

  2024cites this paper
• Oil price uncertainty and corporate inefficient investment: Evidence from China

  2024cites this paper
• Volatility connectedness and its determinants of global energy stock markets

  2024cites this paper
• Mediating and Moderating Effects of Climate Risk on Fossil Energy Stocks through Investor Attention and Oil Market

  2024cites this paper
• Commodity Tails and Bond Risk Premia

  2024cites this paper
• The tail risk premium in the oil market

  2024cites this paper
• The international natural gas price and its cross-sectional pricing implication: Evidence from Chinese stock market

  2024cites this paper
• Spillover Between Investor Sentiment and Volatility: The Role of Social Media

  2024cites this paper
• Do oil price shocks drive systematic risk premia in stock markets? A novel investment application

  2024cites this paper
• COVID-19 and Uncertainty Effects on Tunisian Stock Market Volatility: Insights from GJR-GARCH, Wavelet Coherence, and ARDL

  2024cites this paper
• Crude oil futures and the short-term price predictability of petroleum products

  2024cites this paper
• The ups and downs of oil prices: asymmetric impacts of oil price volatility on corporate environmental responsibility

  2024cites this paper
• Comparing the hedge and safe haven properties of individual commodities for China and United States equity sectors

  2024cites this paper
• Dynamic Relationship between Volatility Risk Premia of Stock and Oil Returns

  2023cites this paper
• Racial and ethnic disparities in unemployment and oil price uncertainty

  2023cites this paper
• Refining Crude Oil Uncertainty Using Corridor Variance Risk Premia

  2023cites this paper
• Research of the non-linear dynamic relationship between global economic policy uncertainty and crude oil prices

  2023cites this paper
• The asset pricing implications of global oil price uncertainty: Evidence from the cross-section of Chinese stock returns

  2023cites this paper
• The predictive effect of risk aversion on oil returns under different market conditions

  2023cites this paper
• Oil price uncertainty, financial distress and real economic activities: Evidence from China

  2023cites this paper
• Risk return analysis of top five cryptocurrencies: An empirical examination

  2023cites this paper
• Contribution of Exchange Traded Funds in Hedging Crude Oil Price Risk

  2023cites this paper
• The Protective Nature of Gold During Times of Oil Price Volatility: An Analysis of the COVID-19 Pandemic

  2023cites this paper
• Oil Price Shocks and Stock-Bond Correlation

  2023cites this paper
• Geopolitical risk and oil price volatility: Evidence from Markov-switching model

  2022cites this paper
• Risk premia in the term structure of crude oil futures: long-run and short-run volatility components

  2022influential citation
• Extreme risk spillover of the oil, exchange rate to Chinese stock market: Evidence from implied volatility indexes

  2022cites this paper
• The impact of oil price shocks on the risk-return relation in the Chinese stock market

  2022cites this paper
• Good oil volatility, bad oil volatility, and stock return predictability

  2022cites this paper
• The asymmetric impact of oil price uncertainty on emerging market financial stress: A quantile regression approach

  2022cites this paper
• Oil price uncertainty and stock price crash risk: Evidence from China

  2022cites this paper
• When are the effects of economic policy uncertainty on oil–stock correlations larger? Evidence from a regime-switching analysis

  2022cites this paper
• The economic impact of daily volatility persistence on energy markets

  2022cites this paper
• Oil implied volatility and expected stock returns along the worldwide supply chain

  2022cites this paper
• Cross-Asset Time-Series Momentum: Crude Oil Volatility and Global Stock Markets

  2022cites this paper
• The impact of digital finance on the natural resource market: Evidence from DeFi, oil, and gold

  2022cites this paper
• Investors’ perspective on forecasting crude oil return volatility: Where do we stand today?

  2021cites this paper
• Volatility spillovers between oil and equity markets and portfolio risk implications in the US and vulnerable EU countries

  2021cites this paper
• Understanding cryptocurrency volatility: The role of oil market shocks

  2021cites this paper
• Oil prices and economic policy uncertainty: Evidence from global, oil importers, and exporters’ perspective

  2021cites this paper
• The predictive content of oil price and volatility: New evidence on exchange rate forecasting

  2021cites this paper
• Is oil price risk systemic to sectoral equity markets of an oil importing country? Evidence from a dependence-switching copula delta CoVaR approach

  2021cites this paper
• Oil Market Factors as a Source of Commonality in Liquidity in International Equity Markets

  2021influential citation
• Forecasting crude oil price intervals and return volatility via autoregressive conditional interval models

  2021cites this paper
• Is oil risk important for commodity-related currency returns?

  2021cites this paper
• Long‐run co‐variability between oil prices and economic policy uncertainty

  2021cites this paper
• Volatility‐of‐volatility risk in the crude oil market

  2021cites this paper
• The role of US implied volatility index in forecasting Chinese stock market volatility: Evidence from HAR models

  2021cites this paper
• Investor attention and oil market volatility: Does economic policy uncertainty matter?

  2021cites this paper
• To expand and to abandon: Real options under asset variance risk premium

  2021cites this paper
• Oil price uncertainty, global industry returns and active investment strategies

  2020cites this paper
• Stock-Oil Comovement: Fundamentals or Financialization?

  2020cites this paper
• Static and dynamic connectedness between oil price shocks and Spanish equities: a sector analysis

  2020cites this paper
• Dynamic spillover and connectedness between oil futures and European bonds

  2020cites this paper
• Crude oil market and Nigerian stocks: An asymmetric information spillover approach

  2020cites this paper
• Analysing spillover between returns and volatility series of oil across major stock markets

  2020cites this paper
• Does OVX affect WTI and Brent oil spot variance? Evidence from an entropy analysis

  2020cites this paper
• Unveiling the Effect of Mean and Volatility Spillover between the United States Economic Policy Uncertainty and WTI Crude Oil Price

  2020cites this paper
• Volatility Transmission from Equity, Bulk Shipping, and Commodity Markets to Oil ETF and Energy Fund—A GARCH-MIDAS Model

  2020cites this paper
• The implied volatility smirk of commodity options

  2020cites this paper
• The role of oil futures intraday information on predicting US stock market volatility

  2020cites this paper
• Regional and copula estimation effects on EU and US energy equity portfolios

  2020cites this paper
• Oil and risk premia in equity markets

  2020cites this paper
• Dynamic connectedness between oil prices and stock returns of clean energy and technology companies

  2020cites this paper
• Economic determinants of oil futures volatility: A term structure perspective

  2020cites this paper
• Moment risk premia and the cross-section of stock returns in the European stock market

  2020cites this paper
• Volatility-of-Volatility Risk in the Crude Oil Market

  2019cites this paper
• Oil prices and economic policy uncertainty: Evidence from a nonparametric panel data model

  2019cites this paper
• The Keys of Predictability: A Comprehensive Study

  2019cites this paper
• Asymmetric linkages among precious metals, global equity and bond yields: The role of volatility and business cycle factors

  2019cites this paper
• Impacts of oil implied volatility shocks on stock implied volatility in China: Empirical evidence from a quantile regression approach

  2019cites this paper
• Oil Futures Volatility and the Economy

  2019cites this paper
• The Relation between Implied Volatility Index and Crude Oil Prices

  2019influential citation
• Relationship between the oil price volatility and sectoral stock markets in oil-exporting economies: Evidence from wavelet nonlinear denoised based quantile and Granger-causality analysis

  2019cites this paper
• Oil Prices and Chinese Stock Market: Nonlinear Causality and Volatility Persistence

  2018cites this paper
• Factor Structure in Commodity Futures Return and Volatility

  2018cites this paper
• The Economic Impact of Index Investing

  2018cites this paper