Estimating Oil Risk Factors Using Information from Equity and Derivatives Markets

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1、THEJOURNALOFFINANCE•VOL.LXX,NO.2•APRIL2015EstimatingOilRiskFactorsUsingInformationfromEquityandDerivativesMarketsI-HSUANETHANCHIANG,W.KEENERHUGHEN,andJACOBS.SAGI∗ABSTRACTWeintroduceanovelapproachtoestimatinglatentoilriskfactorsandestablishtheirsignificanc

2、einpricingnonoilsecurities.Ourmodel,whichfeaturesfourfactorswithsimpleeconomicinterpretations,isestimatedusingbothderivativepricesandoil-relatedequityreturns.Thefitisexcellentinandoutofsample.Theextractedoilfactorscarrysignificantriskpremia,andaresignifican

3、tlyrelatedtomacroeconomicvariablesaswellasportfolioreturnssortedoncharacteristicsandindustry.Theaveragenonoilportfolioexhibitsasensitivitytotheoilfactorsamountingtoasixth(inmagnitude)ofthatoftheoilindustryitself.FEW,IFANY,COMMODITIEShavebeenthefocusofmor

4、eattentionfortheirper-ceivedeconomicsignificancethanoil.Whilethereisstrongevidencerelatingoilpricestothebusinesscycle,thenatureoftherelationshipisnonlinear,time-varying,anddifficulttoattributetoanysinglesourcesuchaspoliticaluncer-tainty,carteldecisions,org

5、lobaleconomicconditions(seeHamilton(2003)andBarskyandKilian(2004)).Despiteitsprominenceinthebusinessmediaandeconomicsliterature,anddespitethewell-documentedroleofbusinesscyclesinassetpricing,academicresearchhaslargelyfailedtofindconsistentevidencethatoili

6、sanimportantdeterminantofcross-sectionalassetprices.1Thispaperintroducesanewmodelandmethodtoestimatelatentoilriskfactorsusing∗EthanChiangandKeenerHughenarefromtheBelkCollegeofBusiness,UniversityofNorthCarolinaatCharlotte.JacobSagiisfromtheKenan-FlaglerBu

7、sinessSchool,UniversityofNorthCarolinaatChapelHill.WearegratefultoseminarparticipantsatHECParis,theUniversityofColorado,theUniversityofFlorida,theUniversityofMaryland,andthe25thAnnualConferenceoftheFinancialMarketsResearchCenteratVanderbiltUniversityfort

8、heirusefulcomments.WeparticularlybenefitedfromcommentsbyGurdipBakshi,BernardDumas,PeteKyle,ChrisLeach,AndyNaranjo,SugataRay,GeorgiosSkoulakis,ZijunWang,theeditor(CamHarvey)andanonymousreferees.JunChenprovidedexcellentresear