Asymmetric and Lag Effects of Industry Risk Factors on the Malaysian Oil and Gas Stocks

Abstract

This study examines asymmetric and the lag effects of oil price, gas price, and exchange rate on stock performance of the Malaysian oil and gas sub-industries. Using company-level data and multi factor asset pricing models, this study found that oil price, gas price, exchange rate, and common systematic risk factors such as market, size, and book-to-market have significant effects on the stock performance of Malaysian oil and gas sub-industries, but these exposures remain heterogeneous. Oil price and exchange rate show strong asymmetrical impacts on stock performance when decomposed into oil price increases (decreases) and exchange rate depreciation (appreciation). Increases in oil price and exchange rate depreciation have a greater impact on stock performance of oil and gas industry than decreases in oil price and exchange rate appreciation. Oil price, gas price, and exchange rate exhibit lag effects on the performance of oil and gas stocks. The findings have important asset pricing implications for profitable investment and portfolio strategies based on oil and gas risk factors for oil-exporting country.JEL Classifications: C13; C58; G10; G12; G14; Q4