Abstract
This study provides market evidence of the effects of economic state variables on sector stock returns and risk premia. Corporate values in the oil and gas sector are underpinned by state reserve participation terms that directly affect corporate cash flow entitlement. Progressive sovereign state participation in Non-OECD contracts result in relative stock return under-performance for companies invested in Non-OECD oilfields. Stock returns for oil and gas companies are used to compare the differential effects of OECD and Non-OECD oilfield asset holdings and provide sector evidence of variation in corporate wealth not captured by an overall market factor. Findings demonstrate that state variables limit the value of emerging market investment.
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