Risk Factors in Oil and Gas Industry Returns: International Evidence

Posted: 6 Jan 2013

See all articles by Sofia Brito Ramos

Sofia Brito Ramos

ESSEC Business School

Helena Veiga

Charles III University of Madrid - Department of Statistics and Econometrics

Date Written: November 3, 2010

Abstract

The recent boom in oil prices has attracted many investors to oil companies in search of both returns and diversification benefits. This analysis of the risk factors of investing in the oil and gas industry in 34 countries finds evidence that oil price is a globally priced factor for the oil industry. The oil and gas sector in developed countries responds more strongly to oil price changes than in emerging markets. Oil and gas industry returns also respond asymmetrically to changes in oil prices; oil price rises have a greater impact than oil price drops. There is no parallel to the asymmetry of oil price changes in other industries related to commodities. If there is any asymmetry, it is in the opposite direction from oil. Negative commodity price changes have a greater impact than positive ones. The results seem to indicate that the oil and gas industry is distinguished by a pass-through effect.

Keywords: Asymmetric Effects, Commodity Price Risk, Multifactor Asset Pricing Models, Net Oil Prices, Oil Industry, Panel Data, Scaled Oil Prices

JEL Classification: C23, G12, Q4, L72

Suggested Citation

Ramos, Sofia Brito and Veiga, Helena, Risk Factors in Oil and Gas Industry Returns: International Evidence (November 3, 2010). Energy Economics, Vol. 33, No. 3, 2011, Available at SSRN: https://ssrn.com/abstract=2197107

Sofia Brito Ramos (Contact Author)

ESSEC Business School ( email )

3 Avenue Bernard Hirsch
CS 50105 CERGY
CERGY, CERGY PONTOISE CEDEX 95021
France

Helena Veiga

Charles III University of Madrid - Department of Statistics and Econometrics ( email )

c/ Madrid 126
Getafe (Madrid), 28903
Spain

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