Title: Oil and equity return predictability: The importance of dissecting oil price changes
Authors: Georgios Skoulakis - University of British Columbia (Canada) [presenting]
Jinming Xue - University of Maryland (United States)
Haibo Jiang - Tulane University (United States)
Abstract: Oil price changes are documented no longer to predict G7 country equity index returns, in contrast to evidence based on data until the mid 2000s. Using a structural VAR approach, we decompose oil price changes into oil supply shocks, global demand shocks, and oil-specific demand shocks. The hypothesis that oil supply shocks and oil-specific demand shocks (global demand shocks) predict equity returns with a negative (positive) slope is supported by the empirical evidence over the 1986-2015 period. The results are statistically and economically significant and do not appear to be consistent with time-varying risk premia.