Oil prices as a predictor of stock market returns

Oil price changes have been considered a good (negative) predictor of stock market returns. In this study, we show via predictive regressions, for an extensive dataset of 44 developed and developing stock markets, that this negative relationship is present only up to the global financial crisis and has largely disappeared ever since. We document an evident shift in the predictive behavior of oil price changes after the 2008 global financial crisis, especially in developed stock markets, a finding that is robust to several additional tests we perform. A possible explanation of the change in the oil-stock return relationship post 2008 could be the increased significance of industrial metals (mainly copper and aluminum). We show that after 2008, industrial metals price changes have gained significance as stock market predictors, mainly in recessions, a finding that is partly consistent with the existing literature on stock market predictability.