Crude oil price uncertainty and corporate investment: New global evidence

Phan, Dinh Hoang Bach; Tran, Vuong Thao; Nguyen, Dat Thanh

doi:10.1016/j.eneco.2018.08.016

Cited by 107 publications

(73 citation statements)

References 45 publications

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“…Consistent with the option theory, this result shows that the irreversibility effect of increased uncertainty dominates the traditional convexity effect. The results resemble some previous results from other studies that Tobin's Q is not a sufficient statistic to explain firms' investment behaviour and, indeed, there is an important role for uncertainty in the investment decision-making process of firms (Rafiq et al (2009), Mohn and Misund (2009), Henriques andSadorsky (2011), Wang et al (2017), Abel (2018) and Phan et al (2019)). Moreover, inconclusive sign and size of the response of investment to uncertainty 20 , found in the literature, indicates the importance of decomposing volatility into the components driven by supply and demand shocks.…”

Section: Estimation Resultssupporting

confidence: 88%

“…Rafiq et al (2009), in a study of Thai economy and by using a vector auto-regression model, show that oil price volatility has negative effect on investment. Similar result found by Wang et al (2017) in a study of the effects of oil price uncertainty on China's economy and Phan et al (2019) in a global level. Using a large set of data, which spans a wide range of countries, Phan et al (2019) also find that the negative effect is stronger in the crude oil producers group than for crude consumers.…”

Section: Literature Reviewsupporting

confidence: 85%

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The investment-uncertainty relationship in the oil and gas industry

2019

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JEL classification: C3 G11 Q41 Q43 A B S T R A C TRecent studies of the oil market demonstrate endogeneity of the oil price by modelling it as a function of consumption and precautionary demands and producers' supply. However, studies analysing the effect of oil price uncertainty on investment do not disentangle uncertainties raised by underlying components which play a role in the oil market. Accordingly, this study uses a new approach to investigate the relationship between investment and uncertainty for a panel of U.S. firms operating in the oil and gas industry. We decompose oil price volatility to be driven by structural shocks that are recognized in the oil market literature, over and above other determinants, in order to study whether the investment uncertainty relationship depends on the drivers of uncertainty. Our findings suggest that oil market uncertainty lowers investment only when it is caused by global (consumption) oil demand shock. Stock market uncertainty is found to have a negative effect on investment with a year of delay. The results suggest no positive relationship between irreversible investment and uncertainty, but interestingly, a positive relation exists for reversible investment. This finding is in line with the option theory of investment and implies that the irreversibility effect of increased uncertainty dominates the traditional convexity effect.

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Section: Estimation Resultssupporting

confidence: 88%

Section: Literature Reviewsupporting

confidence: 85%

The investment-uncertainty relationship in the oil and gas industry

2019

View full text Add to dashboard Cite

show abstract

“…Consistent with the option theory, this result shows that the irreversibility effect of increased uncertainty dominates the traditional convexity effect. The results resemble some previous results from other studies that Tobin's Q is not a sufficient statistic to explain firms' investment behaviour and, indeed, there is an important role for uncertainty in the investment decision-making process of firms (Rafiq et al (2009), Mohn and Misund (2009), Henriques and Sadorsky (2011), Wang et al (2017), Abel (2018) and Phan et al (2019)). Moreover, inconclusive sign and size of the response of investment to uncertainty 20 , found in the literature, indicates the importance of decomposing volatility into the components driven by supply and demand shocks.…”

Section: Estimation Resultssupporting

confidence: 87%

Investment-Uncertainty Relationship in the Oil and Gas Industry

2018

View full text Add to dashboard Cite

Recent studies of the oil market demonstrate endogeneity of the oil price by modelling it as a function of consumption and precautionary demands and producers' supply. However, studies analysing the effect of oil price uncertainty on investment do not disentangle uncertainties raised by underlying components which play a role in the oil market. Accordingly, this study uses a new approach to investigate the relationship between investment and uncertainty for a panel of U.S. firms operating in the oil and gas industry. We decompose oil price volatility to be driven by structural shocks that are recognized in the oil market literature, over and above other determinants, in order to study whether the investment uncertainty relationship depends on the drivers of uncertainty. Our findings suggest that oil market uncertainty lowers investment only when it is caused by global (consumption) oil demand shock. Stock market uncertainty is found to have a negative effect on investment with a year of delay. The results suggest no positive relationship between irreversible investment and uncertainty, but interestingly, a positive relation exists for reversible investment. This finding is in line with the option theory of investment and implies that the irreversibility effect of increased uncertainty dominates the traditional convexity effect.

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“…Oladosu et al ( 2018 ) revisited the correlation between macro-variables and oil prices, where the feedback of macro-activities to oil price shocks appear to have weakened since the 1970s. Phan et al ( 2019 ) demonstrated that West Texas Intermediate (WTI) volatility causes a decline in investment expenditures.…”

Section: Literature Reviewmentioning

confidence: 99%

Spillover and quantile linkage between oil price shocks and stock returns: new evidence from G7 countries

Jiang

Tian

2020

Financ Innov

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The link between crude oil price and stock returns of the Group of Seven (G7) countries (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States) was analyzed in this study using monthly data from January 1999 to March 2020. We adopt a similar approach to Kilian (Am Econ Rev 99(3):1053–1069, 2009) and construct a structural vector autoregression framework to decompose crude oil price shocks into oil supply shock, oil aggregate demand shock, and oil-specific demand shock. We then explore the distinct effects of different kinds of oil price shocks from various sources. Based on the decomposed oil price shocks, we apply the connectedness approach and QQ regression to find time-varying co-movements and tail dependence between oil price shocks and G7 stock returns. There is no general correlation between the decomposed oil prices and stock returns in these countries. The effects of oil price shocks on stock returns across different stock market conditions appear to be heterogeneous. Oil supply shock appears to be a net transmitter of spillover effects for all G7 countries within the sample period.

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Crude oil price uncertainty and corporate investment: New global evidence

Cited by 107 publications

References 45 publications

The investment-uncertainty relationship in the oil and gas industry

The investment-uncertainty relationship in the oil and gas industry

Investment-Uncertainty Relationship in the Oil and Gas Industry

Spillover and quantile linkage between oil price shocks and stock returns: new evidence from G7 countries

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