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Corporate Debt and Stock Returns : Evidence from U.S. Firms during the 2020 Oil Crash

Author

Listed:
  • Arezki,Rabah
  • Cho,Caleb Sungwoo
  • Ha Nguyen
  • Pham,Anh
Abstract
This paper explores the effect of oil price fluctuations on the stock returns of U.S. oil firmsusing an identification strategy through heteroskedasticity, exploiting the 2020 oil price crash. The results aretwofold. First, a decline in oil prices significantly reduces oil firms’ stock returns. On average, a 1 percentdecline in oil prices leads to a 0.44 percent decline in stock prices. Second, firm debt appears irrelevant inmediating the effect of oil prices on oil firms’ stock returns. Moreover, the muted role of debt was not likelycaused by the liquidity backstop provided by the Federal Reserve.

Suggested Citation

  • Arezki,Rabah & Cho,Caleb Sungwoo & Ha Nguyen & Pham,Anh, 2022. "Corporate Debt and Stock Returns : Evidence from U.S. Firms during the 2020 Oil Crash," Policy Research Working Paper Series 10079, The World Bank.
    • Handle: RePEc:wbk:wbrwps:10079
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    References listed on IDEAS

    as
    1. Rüdiger Fahlenbrach & Kevin Rageth & René M Stulz, 2021. "How Valuable Is Financial Flexibility when Revenue Stops? Evidence from the COVID-19 Crisis [The risk of being a fallen angel and the corporate dash for cash in the midst of COVID]," The Review of Financial Studies, Society for Financial Studies, vol. 34(11), pages 5474-5521.
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    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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