Abstract
This study examines the impact of oil price changes on stock returns of nine industry sectors in Indonesia using monthly data during the period January 1996 to June 2008. The results suggest that that in general oil price changes do not have significant impacts on industry stock returns. However, the Government decision to liberalize domestic oil price in October 2005 has a positive and significant impact on stock returns of the mining, but a negative and significant impact on stock returns of the trading sectors. Moreover, using a dummy interaction variable to observe the impact of oil price hikes following the oil price liberalization policy, we find a consistent result for the mining and trading sectors, although the impact is also negative and significant to the consumption and infrastructure sectors. Nevertheless, the sensitivity of stock returns of these sectors on oil price changes is asymmetric, given decreasing oil price does not have significant effects on stock returns of any sectors. This may indicate that decreasing oil price does not always bring good news to investors.
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