Comparative response of global energy firm stocks to uncertainties from the crude oil market, stock market, and economic policy

Oluwasegun B. Adekoya, Johnson A. Oliyide, Oluwademilade T. Kenku, Mamdouh Abdulaziz Saleh Al-Faryan

    Research output: Contribution to journalArticlepeer-review

    Abstract

    In this study, a comparative analysis of the impacts of uncertainties induced by government economic policy and the crude oil and stock markets on the stock returns of 62 energy firms is carried out across different market states. We find that economic policy uncertainty (EPU) has a stronger influence than the two market-based uncertainties. However, the oil market uncertainty (OVX) outperforms the general stock market uncertainty (VIX) for the causality-in-mean, but the reverse holds for the causality-in-variance. Stronger causal impacts are also observed during the normal and bearish market states, in that order. Finally, more significant connection is attributed to the causality-in-mean than the causality-in-variance. Thus, uncertainties, especially the one induced by the economic policy, should not be jettisoned in modeling and forecasting stock returns. The regime-switching regression model also supports the role of uncertainties in predicting the stock returns of the energy firms, with particular emphasis on adverse impact in most regimes. The fact that causality is stronger at the middle and lower quantiles also suggests the poor risk-hedging power of the stocks at the normal and bearish market states.
    Original languageEnglish
    Article number103004
    Number of pages8
    JournalResources Policy
    Volume79
    Early online date15 Sep 2022
    DOIs
    Publication statusPublished - 1 Dec 2022

    Keywords

    • uncertainty
    • stock returns
    • energy firms
    • market states

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