Impact of oil price risk on sectoral equity markets: Implications on portfolio management

Structure and degree of oil price impact on sectoral indices are examined using Quantile Regression Analysis (QRA). Nine sectors are found to provide diversification opportunities during a bull market (i.e. 90th quantile of the return distribution) and three sectors during a bear market (10th quanti...

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Bibliographic Details
Published in:Energy economics 2018-05, Vol.72, p.120-134
Main Authors: Tiwari, Aviral Kumar, Jena, Sangram Keshari, Mitra, Amarnath, Yoon, Seong-Min
Format: Article
Language:English
Subjects:
Asymmetric quantile regression
Causality
Company structure
Contagion
Crude oil prices
Diversification
Energy economics
Exports
Frequency domain analysis
Frequency domain causality
Hedging
Impact analysis
Indexes
Interdependence
Interdependency
Investments
Markets
Oil
Oil price shocks
Petroleum
Portfolio management
Prices
Regression analysis
Risk
Risk management
Securities markets
Tail risk
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Summary:Structure and degree of oil price impact on sectoral indices are examined using Quantile Regression Analysis (QRA). Nine sectors are found to provide diversification opportunities during a bull market (i.e. 90th quantile of the return distribution) and three sectors during a bear market (10th quantile) to hedge oil price risk. Further, the contagion effect and interdependency between oil price and sectoral equity are assessed through frequency domain causality. The causality from oil price in the long run determined that there is interdependence between three sectors and oil price changes. The direction of causality from oil price is mixed in both the short run (high frequency) and long run (low frequency) for nine sectors. Overall, the carbon sector is the only sector that is immune to oil price risk, thereby providing investment and hedging opportunities for portfolio managers. •Oil price shock impacts on Indian stock market sectoral index are investigated.•We use asymmetric quantile regression and frequency-domain Granger causality.•Oil price tail risk affects all sectoral indices other than of the carbon sector.•A contagion effect for negative oil price shocks is found in six sectors.•Interdependency is found in five sectors in the case of positive oil price shocks.
ISSN:0140-9883
1873-6181
DOI:10.1016/j.eneco.2018.03.031