Oil implied volatility and expected stock returns along the worldwide supply chain
发布时间:02-10-23

 Chenchen Li, Yudong Wang, Chongfeng Wu

Energy Economics, Volume 114, October 2022

 

Recommend Reason

Crude oil is a globally utilized resource and thus its supply-chain-related firms act as important components in the worldwide economy. In previous decades, significant variation in crude oil prices has already obtained considerable attention from stock investors. Substantial literature documents that the crude oil market significantly impacts the aggregate stock market, but few studies consider its linkage with micro-level stocks. Motivated by this perspective, we consider linking the crude oil market with worldwide stocks through a supply-chain relationship. Our paper tries to solve the question of how the fluctuation of crude oil prices impacts the stock return performance of crude oil suppliers and customers in worldwide regions. It is of great significance to instruct investors’ decision-making for worldwide oil-related firms and shed light on the regional difference and supply-chain position features when exploring this return predictability.

About the Author

Chenchen Li, School of Economics and Management, Tongji University, China

Yudong Wang, School of Economics and Management, Nanjing University of Science and Technology, China

Chongfeng Wu, Antai College of Economics and Management, Shanghai Jiao Tong University, China

Keywords

Oil implied volatility; OVX; Stock return predictability; Market timing; The worldwide supply chain

Brief Introduction

This paper documents that option-implied oil price volatility measured by CBOE Crude Oil Volatility Index (OVX) can significantly and positively forecast future returns of stocks along the worldwide crude oil supply chain. The portfolio investment exercise also confirms that this predictive model can produce positive economic gains, especially for the supplier-side stock asset allocation. The return predictability holds under a series of robustness checks and extensive tests, including multiple digesting sources, business cycles or market conditions, different predictive measures, longer horizons, and the non-linear dependence structure. Our findings suggest that oil implied volatility plays a nonnegligible role in the cross-asset market timing when investors make decisions with supply-chain-related equities in multiple countries.

 

 

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