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Jurnal

Journal of Banking and Finance

Keyword

Oil;Futures;Predictability;Curvature;Supply shocks;Futures curve

Pengarang

  1. I-Hsuan Ethan Chiang
  2. W.Keener Hughen

    Subject

    1. FINANCIAL
    2. BANKING

      [Abstrak]

      This paper explores stock return predictability by exploiting the cross-section of oil futures
      prices. Motivated by the principal component analysis, we find the
      curvature factor of the oil futures curve predicts monthly stock
      returns: a 1% per month increase in the curvature factor predicts 0.4%
      per month decrease in stock market index return. This predictive pattern
      is prevailing in non-oil industry portfolios, but is absent for
      oil-related portfolios. The in- and out-of-sample predictive power of
      the curvature factor for non-oil stocks is robust and outperforms many
      other predictors, including oil spot prices. The predictive
      power of the curvature factor comes from its ability to forecast
      supply-side oil shocks, which only affect non-oil stocks and are hedged
      by oil-related stocks.

      Periode

      Vol 79, Tahun 2017

      [Berkas]

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