The MAX Effect in an Oil Exporting Country: The Case of Norway
Abstract
:1. Introduction
2. Literature Review
3. Data
4. Discussion, Analysis and Results
4.1. Univariate Portfolio Analysis
4.2. Fama–MacBeth Regressions
4.3. The MAX Effect and Brent Returns
4.4. The MAX Effect and Idiosyncratic Volatility
5. Conclusions
Author Contributions
Funding
Institutional Review Board Statement
Informed Consent Statement
Data Availability Statement
Conflicts of Interest
Appendix A. Variables Definitions
Appendix B
Year | Total Common Stocks Registered at OSE | Total Norwegian Common Stocks |
---|---|---|
1980 | 78 | 78 |
1981 | 85 | 85 |
1982 | 91 | 91 |
1983 | 97 | 97 |
1984 | 111 | 111 |
1985 | 124 | 124 |
1986 | 131 | 131 |
1987 | 128 | 128 |
1988 | 126 | 126 |
1989 | 126 | 126 |
1990 | 135 | 134 |
1991 | 122 | 120 |
1992 | 123 | 121 |
1993 | 138 | 132 |
1994 | 144 | 135 |
1995 | 159 | 148 |
1996 | 172 | 160 |
1997 | 214 | 192 |
1998 | 231 | 203 |
1999 | 228 | 202 |
2000 | 226 | 197 |
2001 | 210 | 179 |
2002 | 196 | 167 |
2003 | 190 | 164 |
2004 | 183 | 156 |
2005 | 217 | 184 |
2006 | 238 | 197 |
2007 | 272 | 217 |
2008 | 266 | 211 |
2009 | 247 | 191 |
2010 | 238 | 184 |
2011 | 231 | 177 |
2012 | 221 | 174 |
2013 | 220 | 171 |
2014 | 216 | 167 |
2015 | 208 | 158 |
2016 | 198 | 153 |
Start | End | Phase | Monthly Average Return |
---|---|---|---|
January 1996 | August 1996 | Bull | 4.53 |
September 1996 | February 1997 | Bear | −2.17 |
March 1997 | May 1997 | Bull | 0.21 |
June 1997 | February 1998 | Bear | −3.71 |
March 1998 | April 1998 | Bull | 4.52 |
May 1998 | June 1998 | Bear | −9.55 |
July 1998 | September 1998 | Bull | 6.97 |
October 1998 | November 1998 | Bear | −17.32 |
December 1998 | March 1999 | Bull | 11.44 |
April 1999 | May 1999 | Bear | 0.02 |
June 1999 | January 2000 | Bull | 8.86 |
February 2000 | December 2000 | Bear | 0.28 |
January 2001 | April 2001 | Bull | 4.60 |
May 2001 | September 2001 | Bear | −4.31 |
October 2001 | March 2002 | Bull | 3.87 |
April 2002 | May 2002 | Bear | −5.35 |
June 2002 | December 2002 | Bull | 4.29 |
January 2003 | March 2003 | Bear | −2.12 |
April 2003 | May 2003 | Bull | 0.50 |
June 2003 | September 2003 | Bear | 0.45 |
October 2003 | February 2004 | Bull | 3.63 |
March 2004 | November 2004 | Bear | 2.82 |
December 2004 | February 2005 | Bull | 7.17 |
March 2005 | April 2005 | Bear | 0.63 |
May 2005 | June 2005 | Bull | 5.47 |
July 2005 | October 2005 | Bear | 0.48 |
November 2005 | December 2005 | Bull | 4.64 |
January 2006 | September 2006 | Bear | −0.09 |
October 2006 | November 2006 | Bull | 5.36 |
December 2006 | August 2007 | Bear | 1.74 |
September 2007 | October 2007 | Bull | 10.45 |
November 2007 | January 2008 | Bear | 0.63 |
February 2008 | May 2008 | Bull | 9.20 |
June 2008 | October 2008 | Bear | −12.89 |
November 2008 | May 2009 | Bull | 2.50 |
June 2009 | August 2009 | Bear | 1.21 |
September 2009 | October 2009 | Bull | 5.08 |
November 2009 | January 2010 | Bear | −1.62 |
February 2010 | March 2010 | Bull | 7.45 |
April 2010 | May 2010 | Bear | −5.22 |
June 2010 | July 2010 | Bull | 6.19 |
August 2010 | May 2011 | Bear | 3.77 |
June 2011 | July 2011 | Bull | 0.26 |
August 2011 | September 2011 | Bear | −5.48 |
October 2011 | February 2012 | Bull | 4.03 |
March 2012 | May 2012 | Bear | −7.49 |
June 2012 | July 2012 | Bull | 4.34 |
August 2012 | October 2012 | Bear | 0.76 |
November 2012 | January 2013 | Bull | 2.01 |
February 2013 | April 2013 | Bear | −5.17 |
May 2013 | July 2013 | Bull | 3.81 |
August 2013 | September 2013 | Bear | −1.01 |
October 2013 | November 2013 | Bull | 1.98 |
December 2013 | December 2014 | Bear | −4.95 |
January 2015 | February 2015 | Bull | 5.42 |
March 2015 | July 2015 | Bear | −3.36 |
August 2015 | October 2015 | Bull | −1.06 |
November 2015 | December 2015 | Bear | −12.94 |
January 2016 | April 2016 | Bull | 6.82 |
May 2016 | December 2016 | Bear | 2.41 |
1 | TITLON contains financial data from 1980 until present, for further details, see https://titlon.uit.no/ (accessed on 11 January 2018). |
2 | They are categorized as “A-aksjer”, “Ordinære aksjer”, and “Konverterte A” in the TITLON database. |
3 | We also performed all analyses on datasets for different periods—1982–2016, 1985–2016, and 1990–2016, for example; however, the results were similar to those for the 1996–2016 dataset. For brevity, therefore, we report most results for the 1996–2016 data. |
4 | Table A1 in Appendix B reports the number of stocks registered on the OSE over the years. |
5 | http://finance.bi.no/~bernt/financialdata/oseassetpricingdata/index.html (accessed on 7 November 2018). |
6 | Book-to-market data before 1998 are rarely available for all firms. Therefore, we report results for 1998–2016 data where book-to-market-characteristic data are involved. |
7 | Even if we include these stocks, the results remain similar. |
8 | A minimum transition probability of 33.3% is required in tercile portfolio analysis to show persistence. |
9 | As Bali et al. (2011) did in their paper, we also winsorize the right-hand-side variables at the 0.5 % and 99.5% levels before running all regressions. |
10 | Duration of bull and bear periods are presented in detail in Table A2. |
11 | Following Bali et al. (2011), we orthogonalize IVOL with respect to MAX and MIN when we use any two of these three variables in regressions to avoid the multicollinearity problem. MAX-IVOL and MIN-IVOL are 88% and 82% correlated, respectively, in the Norwegian market. |
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Portfolio | Avg. Stocks/ Month | Mean | Median | Standard Deviation | Skewness | Percentile (1%) | Percentile 25%) | Percentile (75%) | Percentile (99%) |
---|---|---|---|---|---|---|---|---|---|
Quartile Portfolio Analysis: 25% stocks in each portfolio | |||||||||
High MAX | 22 | 0.59 | −0.43 | 16.72 | 1.47 | −39.02 | −7.49 | 7.44 | 52.89 |
Low MAX | 22 | 0.66 | 0.29 | 10.62 | 0.56 | −26.00 | −4.42 | 5.70 | 30.94 |
Tercile Portfolio Analysis: 35% of stocks in high- and low-MAX portfolios and 30% in middle portfolios | |||||||||
High MAX | 30 | 0.53 | −0.31 | 16.13 | 1.44 | −39.44 | −7.15 | 7.41 | 49.51 |
Low MAX | 30 | 0.82 | 0.40 | 10.97 | 0.51 | −27.74 | −4.47 | 5.97 | 32.10 |
MAX | MAX(2) | MAX(3) | MAX(4) | MAX(5) | |
---|---|---|---|---|---|
Panel A: Equal weighted portfolio | |||||
High MAX | 0.68 | 0.60 | 0.62 | 0.60 | 0.66 |
Middle Portfolio | 0.70 | 0.91 | 0.91 | 0.92 | 0.82 |
Low MAX | 0.93 | 0.82 | 0.80 | 0.82 | 0.85 |
Return difference (High-Low) | −0.25 | −0.22 | −0.18 | −0.22 | −0.19 |
(t-statistic) | (−0.73) | (−0.61) | (−0.50) | (−0.60) | (−0.52) |
CAPM alpha difference | −0.33 | −0.32 | −0.30 | −0.34 | −0.32 |
(t-statistic) | (−1.11) | (−1.04) | (−1.01) | (−1.19) | (−1.13) |
FF + Carhart alpha difference | −0.59 | −0.57 | −0.52 | −0.52 | −0.49 |
(t-statistic) | (−2.31) | (−2.14) | (−2.04) | (−2.17) | (−1.96) |
Panel B: Value weighted portfolio | |||||
High MAX | 1.09 | 0.98 | 0.83 | 0.66 | 0.86 |
Middle Portfolio | 0.79 | 0.91 | 1.02 | 1.03 | 0.87 |
Low MAX | 0.94 | 0.93 | 0.97 | 0.96 | 0.95 |
Return difference (High-Low) | 0.15 | 0.04 | −0.14 | −0.3 | −0.09 |
(t-statistic) | (0.38) | (0.11) | (−0.32) | (−0.66) | (−0.18) |
CAPM alpha difference | 0.00 | −0.18 | −0.42 | −0.61 | −0.42 |
(t-statistic) | (0.00) | (−0.47) | (−1.16) | (−1.60) | (−1.08) |
FF + Carhart alpha difference | 0.00 | −0.12 | −0.30 | −0.42 | −0.25 |
(t-statistic) | (0.01) | (−0.30) | (−0.79) | (−1.08) | (−0.61) |
Month (t) | Month (t + 1) | ||
---|---|---|---|
Portfolio | High-MAX | Middle Portfolio | Low-MAX |
High-MAX | 0.488 | 0.308 | 0.209 |
Middle Portfolio | 0.312 | 0.352 | 0.336 |
Low-MAX | 0.199 | 0.296 | 0.505 |
MAX | BETA | SIZE | BM | MOM | ILLIQ | REV |
---|---|---|---|---|---|---|
−0.032 | ||||||
(−0.86) | ||||||
−0.029 | 0.003 | |||||
(−0.76) | (0.70) | |||||
−0.032 | 0.001 | |||||
(−0.86) | (0.99) | |||||
−0.030 | −0.000 | |||||
(−0.79) | (−0.75) | |||||
−0.026 | 0.015 | |||||
(−0.76) | (3.92) | |||||
0.004 | −0.043 | |||||
(0.12) | (−3.51) | |||||
−0.045 | 0.009 | |||||
(−1.20) | (0.59) | |||||
−0.017 | 0.002 | 0.0 00 | 0.000 | 0.013 | −0.031 | 0.007 |
(−0.44) | (0.53) | (0.04) | (−0.51) | (3.42) | (−2.40) | (0.48) |
Panel A: Equal-Weighted/OLS | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
A1: All Sample | A2: Bullish Oil Market | A3: Bearish Oil Market | ||||||||||||||||||
MAX | BETA | SIZE | BM | MOM | ILLIQ | REV | MAX | BETA | SIZE | BM | MOM | ILLIQ | REV | MAX | BETA | SIZE | BM | MOM | ILLIQ | REV |
−0.068 | −0.041 | −0.134 | ||||||||||||||||||
(−1.22) | (−0.54) | (−2.07) | ||||||||||||||||||
−0.059 | −0.007 | −0.046 | 0.004 | −0.115 | −0.014 | |||||||||||||||
(−1.10) | (−1.41) | (−0.60) | (0.52) | (−1.88) | (−2.82) | |||||||||||||||
−0.064 | 0.000 | −0.024 | 0.002 | −0.135 | 0.000 | |||||||||||||||
(−1.10) | (0.39) | (−0.29) | (0.98) | (−2.05) | (−0.14) | |||||||||||||||
−0.068 | 0.000 | −0.041 | 0.000 | −0.134 | 0.000 | |||||||||||||||
(−1.72) | (0.09) | (−0.73) | (0.03) | (−3.30) | (0.04) | |||||||||||||||
−0.056 | 0.016 | −0.007 | 0.022 | −0.136 | 0.018 | |||||||||||||||
(−1.04) | (2.80) | (−0.10) | (2.91) | (−2.21) | (2.80) | |||||||||||||||
−0.037 | −0.035 | 0.011 | −0.049 | −0.116 | −0.023 | |||||||||||||||
(−0.72) | (−3.93) | (0.15) | (−3.89) | (−1.92) | (−1.98) | |||||||||||||||
−0.115 | 0.089 | −0.077 | 0.084 | −0.206 | 0.111 | |||||||||||||||
(−2.04) | (3.74) | (−1.05) | (2.86) | (−3.04) | (3.80) | |||||||||||||||
−0.082 | −0.006 | −0.001 | 0.000 | 0.014 | −0.024 | 0.080 | −0.014 | 0.004 | −0.001 | 0.000 | 0.019 | −0.036 | 0.069 | −0.191 | −0.013 | −0.001 | 0.000 | 0.017 | −0.013 | 0.105 |
(−1.36) | (−1.16) | (−0.91) | (0.00) | (2.42) | (−2.76) | (3.27) | (−0.16) | (0.51) | (−0.27) | (−0.07) | (2.40) | (−2.70) | (2.16) | (−2.74) | (−2.55) | (−1.06) | (−0.03) | (2.68) | (−1.13) | (3.63) |
Panel B: Value-Weighted/WLS | ||||||||||||||||||||
B1: All Sample | B2: Bullish Oil Market | B3: Bearish Oil Market | ||||||||||||||||||
MAX | BETA | SIZE | BM | MOM | ILLIQ | REV | MAX | BETA | SIZE | BM | MOM | ILLIQ | REV | MAX | BETA | SIZE | BM | MOM | ILLIQ | REV |
−0.088 | 0.038 | −0.239 | ||||||||||||||||||
(−0.81) | (0.22) | (−2.15) | ||||||||||||||||||
−0.069 | −0.012 | 0.050 | −0.008 | −0.219 | −0.012 | |||||||||||||||
(−0.67) | (−1.47) | (0.30) | (−0.56) | (−2.03) | (−1.26) | |||||||||||||||
−0.076 | 0.001 | 0.072 | 0.002 | −0.228 | 0.001 | |||||||||||||||
(−0.71) | (0.69) | (0.42) | (1.22) | (−2.08) | (0.51) | |||||||||||||||
−0.088 | 0.000 | 0.038 | 0.000 | −0.239 | 0.000 | |||||||||||||||
(−1.09) | (−0.08) | (0.30) | (0.08) | (−2.47) | (−0.59) | |||||||||||||||
−0.088 | 0.004 | 0.063 | 0.015 | −0.249 | 0.008 | |||||||||||||||
(−0.88) | (0.46) | (0.42) | (1.34) | (−2.29) | (0.90) | |||||||||||||||
−0.083 | −0.041 | 0.047 | −0.060 | −0.236 | −0.032 | |||||||||||||||
(−0.75) | (−3.15) | (0.27) | (−2.65) | (−2.11) | (−2.11) | |||||||||||||||
−0.113 | 0.054 | 0.030 | 0.027 | −0.304 | 0.107 | |||||||||||||||
(−1.03) | (1.61) | (0.17) | (0.62) | (−2.76) | (2.65) | |||||||||||||||
−0.074 | −0.012 | 0.001 | 0.000 | 0.003 | −0.033 | 0.050 | 0.117 | −0.011 | 0.003 | 0.000 | 0.016 | −0.043 | 0.022 | −0.281 | −0.011 | 0.001 | 0.000 | 0.008 | −0.017 | 0.103 |
(−0.63) | (−1.51) | (0.78) | (0.10) | (0.44) | (−2.35) | (1.49) | (0.64) | (−0.80) | (1.32) | (0.23) | (1.38) | (−1.86) | (0.52) | (−2.37) | (−1.21) | (0.43) | (−0.33) | (0.86) | (−1.07) | (2.58) |
Statistic | Bear Periods | Bull Periods | ||
---|---|---|---|---|
Monthly Values | Annualized Values | Monthly Values | Annualized Values | |
Mean Return | −1.83 | −24.34 | 4.96 | 78.71 |
Median Return | −1.96 | −26.27 | 3.24 | 46.66 |
Standard Deviation | 10.46 | 36.23 | 9.59 | 33.23 |
Minimum Return | −34.57 | - | −21.12 | - |
Maximum Return | 39.03 | - | 38.78 | - |
Panel A: Equal-Weighted/OLS | ||||||||
---|---|---|---|---|---|---|---|---|
IVOL | MAX | MIN | BETA | SIZE | BM | MOM | ILLIQ | REV |
−0.007 | ||||||||
(−3.20) | ||||||||
0.004 | −0.127 | |||||||
(2.52) | (−1.93) | |||||||
0.004 | −0.126 | 0.288 | ||||||
(2.47) | (−1.95) | (3.23) | ||||||
0.005 | −0.200 | 0.095 | −0.014 | −0.003 | 0.000 | 0.017 | −0.005 | 0.098 |
(3.60) | (−2.91) | (1.32) | (−2.68) | (−2.49) | (−0.10) | (2.68) | (−0.43) | (3.48) |
Panel B: Value-Weighted/WLS | ||||||||
IVOL | MAX | MIN | BETA | SIZE | BM | MOM | ILLIQ | REV |
−0.011 | ||||||||
(−3.36) | ||||||||
0.002 | −0.244 | |||||||
(0.93) | (−2.31) | |||||||
0.003 | −0.265 | 0.288 | ||||||
(1.22) | (−2.64) | (3.23) | ||||||
0.005 | −0.330 | 0.267 | −0.010 | −0.002 | 0.000 | 0.010 | 0.000 | 0.075 |
(1.86) | (−2.76) | (1.89) | (−1.01) | (−1.03) | (−0.21) | (1.09) | (−0.02) | (1.74) |
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Kashif, M.; Leirvik, T. The MAX Effect in an Oil Exporting Country: The Case of Norway. J. Risk Financial Manag. 2022, 15, 154. https://doi.org/10.3390/jrfm15040154
Kashif M, Leirvik T. The MAX Effect in an Oil Exporting Country: The Case of Norway. Journal of Risk and Financial Management. 2022; 15(4):154. https://doi.org/10.3390/jrfm15040154
Chicago/Turabian StyleKashif, Muhammad, and Thomas Leirvik. 2022. "The MAX Effect in an Oil Exporting Country: The Case of Norway" Journal of Risk and Financial Management 15, no. 4: 154. https://doi.org/10.3390/jrfm15040154