1. Oil Price and European Stock Markets Mihály Ormos and Gábor Bóta Department of Finance Budapest University of Technology and Economics 13th International Scientific Conference, European Financial Systems 27-28 June 2016, Brno, Czech Republic

2. Introduction The effects of oil price changes on stock returns have been extensively investigated. The results about the relationship between oil prices and stock returns are highly dependent on the countries, regions, industries and even periods examined. –Basher and Sadorsky (2006), Nandha and Hammoudeh (2007), Mohanty et al. (2010), Aloui et al. (2013), Asteriou and Bashmakova (2013), Fang and You (2014) Our goal is to examine and compare the effects of oil price changes on European industries and the sub-sectors of oil and gas industry. Oil Price and European Stock Markets 2

3. 3 Data and methodology Our dataset includes monthly total returns (in USD) of European equity indexes. –Ten top-level sector Europe-Datastream indexes –Nine sub-sector indexes of the oil and gas industry. –Oil price is represented by the Brent USD per barrel price the market proxy is CRSP Europe Value Weighted Return Premium Period: July 1990 – April 2016 –We separate (bullish and bearish) sub-periods based on the oil price change. We apply the following equilibrium models: –standard CAPM –Fama-French three-factor model –Carhart four-factor model

4. Oil Price and European Stock Markets 4 Data and methodology Descriptive statistics

5. Oil Price and European Stock Markets 5 Results (industries)

6. Oil Price and European Stock Markets 6 Results (oil sector)

7. The effect of different oil price change We have incorporated an additional variable into our model to distinct different oil market situations: –Oil price dummy variable equals 1 when the oil price return of the given month is above the mean return of the whole investigated period. Oil Price and European Stock Markets 7

8. The effect of oil market circumstances Oil Price and European Stock Markets 8

9. Conclusions We test three different asset pricing models applying different market proxies, and we incorporate oil price factor into the models. Oil price factor increase the explanatory power of the models for oil and gas sector and most its sub-sectors, while for other industries there is not such effect. –Alternative fuel industry exhibit no sensitivity oil prices. –From among other top/level indexes only basic materials, healthcare and telecommunication exhibit sensitivity to oil prces. We also test different situations regarding the movement of general oil price to examine regime dependency. –The impact of oil price factor is different based on oil market conditions for the companies of the broad oil and gas industry and two of its subsectors (oil and gas producers, integrated oil and gas companies). Oil Price and European Stock Markets 9

10. 10