Managing U.S. Stock Market Oil Price Risk Using
Exchange-Traded Funds

Abstract

The broad range of viewpoints with respect to the effects of changing oil prices on U.S. stock markets leave equity portfolio managers puzzled about how changing oil prices are going to affect their portfolios and how and if they should try to manage oil price risk. This article seeks to help equity portfolio managers to better understand and manage oil price risk by studying and estimating the relationship between oil prices and sectors of the U.S. stock market, across several periods of time (not just during oil price shocks). Additionally, the authors test for and discover an exchange-traded fund (ETF) investment security that U.S. equity portfolio managers could use for managing oil price risk.

TOPICS: Security analysis and valuation, equity portfolio management, risk management