Using Oil To Trade Equities
- By Sam van de Schootbrugge
- 7 min read
Summary
- A new Journal of Banking and Finance paper constructs a momentum model based on stock market returns and oil-implied volatility.
- The use of oil-implied volatility, or oil price uncertainty, builds on the fact that oil is a key determinant of global growth and stock prices.
- The paper’s model performs significantly better than a model that only captures momentum in stock prices.
- When applied to the S&P500, the same model significantly outperforms a simple buy-and-hold strategy and is signalling a ‘buy’ for November.
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