Comparative Analysis of Oil Price and Exchange Rate Volatility in Industries Return Relating to Petroleum Based On Arbitrage Pricing Theory and Dynamic Regression Model

Macroeconomic factors are important for multifactor asset pricing at the industry level. Apart from oil prices, the market portfolio is a significant pricing factor in all industry excess returns. Exchange rates are also an influential factor for excess returns.
This paper aims to examine the impact of crude oil prices and exchange rate on industry relating to petroleum stock returns. Multifactor static and dynamic models consider crude oil and exchange rate as pricing factors in the industries excess returns from 1384 to 1388. The macroeconomic factors comprise the market portfolio, oil prices, and exchange rates.
Oil prices are an important determinant of returns in all of the studying industries. The findings also suggest oil price movements are persistent. Nonetheless, the proportion of variation in excess returns explained by the one to three lagged oil prices appears to have significant for just oil products industry and one month lag is significant for plastic industry and finally no legs are significant for remaining industries.