The oil price risk and global stock returns

This study investigates the oil price risk exposure of stock level returns for 23 developed financial markets from July 1990 to March 2019. The oil price factor is included into the factor-based asset pricing framework as a pricing factor and tested against returns on global portfolios sorted by different fundamental variables such as size and book-to-market (B/M), size and profitability and size and investment. The oil price risk model is also tested against the aggregate market returns of five major regions, namely the US, Asia Pacific, North America, Japan and Europe. The results show that the oil price risk is not an influential pricing factor within the framework of factor-based asset pricing models. The information content of the oil price factor can be easily subsumed by the established asset pricing factors. The findings are robust against different pricing models and multiple test statistics. (C) 2020 Elsevier Ltd. All rights reserved.