نهادها و بازگشت پیش بینی پذیری در کشورهای صادرکننده نفت
Abstract
1- Introduction
2- Data and empirical implementation
3- Results
4- Conclusions
References
Abstract
We study whether oil price changes have predictive power for stock market returns in oil-exporting countries, and we investigate the link between predictability and the quality of each country's institutions. Returns are predictable for half the countries we consider, and predictability is stronger when institutional quality is lower. We argue that the relation between predictability and institutional quality reflects the preference of countries with weaker institutions to consume oil windfalls locally rather than smooth out their impact by, for example, investing the proceeds internationally.
Introduction
In this paper, we investigate whether oil price changes can predict short-term stock returns in oil-exporting countries. This predictability stems from delayed reaction to changes in oil price information and we link the strength of the predictive relation to institutional quality, for which we use Transparency International’s Corruption Perceptions Index as a proxy. We find that marketindex returns are predictable in half the countries we consider, and that predictability is stronger for countries with weaker institutions. Thus, we join evidence from two strands of the literature in our study, one from asset pricing theory and another from political economy. Our analysis builds on two key assumptions. First, that due to the delayed response of stock returns to oil price changes (identified by Driesprong, Jacobsen, & Maat, 2008), stock returns in t will respond to oil price changes in t − 1. This analysis builds on key insights introduced by Hong and Stein (1999). They develop a theoretical framework for slow diffusion of information in financial markets, due to bounded rationality of agents who do not react to varied sources of information in real time, leading to delayed reaction in asset prices in one market (say, equities) to information stemming from other markets such as oil in our study. Hong, Torous, & Valkanov, 2007, Driesprong et al. (2008), and Fan and Jahan-Parvar (2012) investigate these insights empirically.1 Second, based on the extant literature, we posit that institutional quality is negatively related to the propensity to consume oil windfalls, directly through pro-cyclical fiscal policies or indirectly through inefficient expenditure.