Oil and the Stock Market: An Industry Level Analysis

I investigate the impact of daily oil price changes on the stock returns of a wide array of industries. I find that in addition to the stock returns of industries that depend heavily on oil, stock returns of some industries that use little oil also are sensitive to oil prices perhaps because their main customers are impacted by oil price changes. In addition, I present robust estimates of industries' cost-side and demand-side dependence on oil. These measures can serve as reliable benchmarks when classifying industries into oil-intensive and non-oil-intensive groups, a distinction widely used in studies and media without any quantitative justification so far. Further, I find that the sensitivity of industries' returns to oil price changes depends on both the cost-side and demand-side dependence on oil and that the relative effects of these factors vary across industries.