Modelling oil and gas stock returns using multi factor asset pricing model including oil price exposure

Sanusi, Muhammad Surajo and Ahmad, Farooq (2016) Modelling oil and gas stock returns using multi factor asset pricing model including oil price exposure. Finance Research Letters, 18. pp. 89-99. ISSN 15446123

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Abstract

Oil and gas is one of the most important sectors in every economy and the valuation of oil and gas companies becomes quite challenging due to the volatility of crude oil price. The paper investigates the determinants of the UK oil and gas stock returns using multi factor asset pricing model and the existence of asymmetric effects in the Brent crude oil price. Our results show that market risk, oil price risk, size and book-to-market related factors are all relevant in the determination of asset returns of the oil and gas companies quoted on the London stock exchange. Oil price increases and decreases decomposed separately have more effect on the oil companies’ stock returns than the normal log changes of the price which show the presence of asymmetric effect. However, the oil price shocks in general do not seem to strongly affect stock returns in oil and gas sector possibly due to horizontal and vertical integration of bigger companies in the sector.

Item Type: Article
Identification Number: https://doi.org/10.1016/j.frl.2016.04.005
Dates:
DateEvent
August 2016Published
3 April 2016Accepted
9 April 2016Published Online
Uncontrolled Keywords: Asset pricing model; Brent crude oil; Asymmetry in oil rice; Size effect; Book to market ratio; Oil and gas sector; Oil price exposure; Structural breaks
Subjects: CAH17 - business and management > CAH17-01 - business and management > CAH17-01-07 - finance
Divisions: Faculty of Business, Law and Social Sciences > Birmingham City Business School > Department of Accounting, Finance and Economics
Depositing User: Users 18 not found.
Date Deposited: 14 Feb 2017 15:53
Last Modified: 03 Mar 2022 15:52
URI: https://www.open-access.bcu.ac.uk/id/eprint/3504

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