Oil price risk exposure: A comparison of financial and non-financial subsectors

• Published in: Energy (Oxford) Vol. 109; pp. 712 - 723
• Main Authors: Shaeri, Komeil, Adaoglu, Cahit, Katircioglu, Salih T.
• Format: Journal Article
• Language: English
• Published: Elsevier Ltd 15.08.2016
• Subjects: Fama-French five-factor model; Multiple structural breaks; Oil price risk exposure; State-space model; Subsector equity returns; Multiple structural breaks; Subsector equity returns; Oil price risk exposure; Fama-French five-factor model; State-space model
• ISSN: 0360-5442
• DOI: 10.1016/j.energy.2016.05.028

This study examines the oil price risk exposure of U.S. financial and non-financial industries over the period of January 1983 to March 2015. We include the oil price risk factor into the Fama and French [17] five-factor asset pricing model and identify the structural breaks in the equity returns using the test created by Bai and Perron [4]. The oil price risk exposures of financial and non-financial industries are estimated at the subsector level. The results show that the degree of oil price sensitivity differs noticeably across subsectors and over time. The magnitude of oil prices' impact on the financial subsectors is considerably lower than the magnitude of its impact on the non-financial subsectors. Among the financial subsectors, Mortgage Finance and Real Estate Services have the largest negative and positive exposures to oil price risk, respectively. Among the non-financial subsectors, Airlines and Oil Equipment Services have the largest negative and positive oil price risk exposures, respectively. •We examine the oil price risk exposure of U.S. financial and non-financial subsectors.•We incorporate the oil price risk factor into the Fama-French [17] five-factor model.•We identify the structural breaks in the equity returns using Bai-Perron's [4] test.•The degree of oil price sensitivity differs noticeably across subsectors and over time.•The non-financial subsectors are more affected by oil prices than the financial subsectors.