How do U.S. stock returns respond differently to oil price shocks pre-crisis, within the financial crisis, and post-crisis?

- We investigate how stock returns respond differently to oil price shocks prior to, during, and after a financial crisis.
- We add the firm size to investigate the effect of oil price shocks on stock returns.
- Stock returns respond positively to the changes in oil prices during and after such a crisis.
- Stock returns of medium-sized firms are positively affected more by an oil price increase in the post-crisis.

We use a long time series of daily data for 682 firms over a period from January, 1990 to December, 2012. Each firm includes 5,772 daily observations. Our sample involves a total of 3,936,504 observations to investigate how U.S. stock returns respond differently to oil price shocks prior to, during, and after a financial crisis. We provide evidence that U.S. stock returns in turn respond positively to the changes in oil prices during and after such a crisis. We use firm-level data to find that positive and negative oil price shocks have asymmetric effects on stock returns during the crisis and after the crisis. Then, we examine whether the effect of an oil price shock on stock returns varies across oil-intensive industries. Within the crisis and post-crisis, our results indicate that stock returns in response to oil price shocks across industries are heterogeneous, and the stock returns of some energy-intensive manufacturing industries respond more positively to oil price shocks compared with less energy-intensive manufacturing industries. We use total assets, total revenue, and the number of employees as proxy variables to measure each firm's size and then examine whether oil price shocks affect stock returns differently across firm sizes. We find that big firms are the most strongly and negatively influenced by an oil price shock prior to the crisis. On the other hand, our results indicate that an oil price shock in the post-financial crisis period is positively amplified in the case of medium-sized firms.