Abstract
Extensive literature has shown the predictability of stock returns based on various factors originating in the oil markets. We investigate the international stock return predictability at both daily and monthly frequencies from a new perspective of oil market uncertainties, which are measured by the oil volatility risk premium. In addition to traditional in-sample and out-of-sample analyses, a time-varying approach is also employed to identify the predictive characteristics of the oil market uncertainty. However, the empirical results suggest that there is a weak statistically significant effect of the oil market volatility on global stock returns. The results are essentially unchanged during cyclical expansions and recessions as well as during market periods with relatively high and low volatility. Even in the time-varying analysis, the stock return predictability based on the oil market uncertainty is still inferior. Generally, we shed some doubts on the stock return predictability based on the oil market uncertainty, which contrasts with the existing perspectives.
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