OIL PRICE AND STOCK RETURNS IN EUROPE

In this paper we examine the relationship between oil price changes and of European oil and gas companies. We use all the widely known equilibrium models and extend them with the oil price factor as well. We classify the companies according to their location into Western European (WE), Central and Eastern European (CEE) and South Eastern European region (SE). Our results show that oil is a significant factor for most of the Western European, but less than the half of the CEE and SE companies. These results suggest that Western European oil and gas companies have high exposure to oil price changes, while the returns of their CEE and SE counterparts are less influenced by the oil price. When we incorporate oil price changes the explaining power of the models increases substantially for Western European companies but we can detect only a slight change for CEE and South Eastern European oil and gas companies. We also detect regional differences in the sign of the HML factor, which is usually negative for Western European and positive for CEE and South Eastern European companies.