Do investors price industry risk? Evidence from the cross-section of the oil industry

Abstract

Recent research identifies several industry-related patterns that standard asset pricing models cannot explain effectively. This paper investigates what explains the crosssection of returns of firms in the oil industry and, in particular, how well an oil factor performs in comparison with the common systematic factors identified in the literature. We conduct a time series analysis and demonstrate that the oil factor has substantial explanatory power over traditional factors. A cross-sectional regression shows that the size, momentum and oil factors are associated with a positive risk premium and are able to explain the cross-sectional variation in stock returns in the

The Effects of Oil and Gas Risk Factors on Malaysian Oil and Gas Stock Returns: Do They Vary?

“…The oil and gas industry is no exceptional. The industry's business and stock performance are very much dependent on changes in oil and gas prices, because oil and gas are crucial inputs for many goods and services in the economy (see [2][3][4][5][6][7][8]). Lower prices of oil and gas reduce the input costs and expenses of oil and gas firms' business operations, thereby increasing corporate earnings and cash flows.…”

Achieving Agility and Dynamic Capabilities on Sustainable Performance: Evidence from the Upstream Oil and Gas Sector

“…Price instability is not only a significant challenge for the oil and gas industry (Regnier, 2007). They force the managers to increase the value creation as an alternative of output due to low returns (Ramos, Taamouti, Veiga, and Wang, 2017;Pociovalisteanu et al, 2010).…”

“…Several studies (Zhao and Hsu, 2007;Phene and Almeida, 2008) argue that external learning sources are more effective in facing uncertain conditions. This forces the managers to increase the value creation as an alternative of output due to low returns (Ramos, Taamouti, Veiga, and Wang, 2017).…”

Challenges for sustainable development strategies in oil and gas industries

“…The oil industry should invest pro rata to the increasing demand for energy in the world, and on the other hand, in view of the more competitive activities in these sectors, this industry should reduce the total cost of production of hydrocarbon resources, while simultaneously adhering to the environmental laws and social responsibilities. Some significant challenges for oil and gas industry include:  Price fluctuation (Regnier, 2007);  Increasing pressure on managers by shareholders focusing on value creation instead of output because of low returns on investments (Ramos, Taamouti, Veiga, & Wang, 2017);  Complexity of drilling and production process (Gupta & Grossmann, 2017);  Increasing demand for oil and gas in most regions (BP, 2017a);  HSE compliance remaining critical -especially in the current environment of volatile prices and cost savings (Neill, 2017);  Protection of the social license of operation (Tomlinson, 2017) and corporate social responsibilities (Banerjee, 2017);  Fluctuation of fiscal regimes;  R&D and innovation (Hall & Vredenburg, 2003);  Handling growing size of data and knowledge management (Bratianu & Bolisani, 2015); and  Unstable partnership of NOC-IOC: (Whitson, 2009).…”