A threshold effect of COVID-19 risk on oil price returns.

ABSTRACT: Using U.S. data, we investigate how the COVID-19 pandemic influences oil price returns in an asset pricing framework. Unlike earlier studies, we consider a threshold model to allow for the possibility that COVID-19 risk may not play a role until it reaches a certain level. Based on WTI crude oil spot price data from January 2020 to December 2021, our findings show that oil returns significantly decline with the daily number of COVID-19 deaths but only if the daily death toll exceeds approximately 2100. In addition, a more severe COVID-19 pandemic can substantially increase the exposure of oil returns to various systematic risk factors, which has not been documented in previous literature.

SUBMITTER: Sun Y 

PROVIDER: S-EPMC9995300 | biostudies-literature | 2023 Apr

REPOSITORIES: biostudies-literature