Abstract
Harris and Ohlson (1990) provide evidence suggesting market inefficiencies in the pricing of oil and gas firms in the 1979–1984 period. This paper examines three possible explanations for their results. First, are differences in oil and gas market values (IVR) explained by risk differences. Second, is the trading rule sensitive to changes in oil and gas prices? Third, can the results be replicated in a later period? We provide evidence in support of the risk-based explanation by demonstrating that approximately 75% of the trading rule return can be explained by adjusting for a stock's covariance with market and energy price movements. In addition, we demonstrate some time specific element to the results since the trading rule performs poorly in a subsequent time period.
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