Oil prices and UK industry-level stock returns

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In this article, we study whether the behaviour of oil prices can be used as a reliable predictor for the disaggregated industry-level stock market indices. We find strong evidence for the relevance of changes in oil price as a predictor for the returns of UK industry portfolios, while this relevance is heterogeneous across industries. In an out-of-sample framework, we find that both the contemporaneous and lagged oil price changes do predict UK industry stock market returns. The predictive power is more transient for the latter case, and mostly appearing after allowing for time variation in the relative performance. In addition, we find some evidence of asymmetry in the oil–stock price relationships.

Original languageEnglish
Pages (from-to)2608-2627
Number of pages20
JournalApplied Economics
Issue number25
Early online date11 Feb 2015
Publication statusPublished - 2015


  • asymmetric effect
  • industry-level
  • oil price shocks
  • out-of-sample forecast
  • UK stock returns


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