Price Discovery in a Financialized Oil Market.

This article investigates how financialization—the increased participation of institutional investors using oil company stocks as financial assets—affects price discovery in crude oil markets. Using daily data from 2013 to 2023 for nine U.S.-listed oil companies across upstream, integrated, and downstream sectors, the study finds that returns to oil company stocks "Granger cause" returns to crude oil prices, indicating that stock returns contain unique information beyond market fundamentals and financial conditions. Conversely, crude oil prices also "Granger cause" stock returns, establishing a bidirectional causal relationship that varies with convenience yields, a proxy for the returns to holding physical oil as a commodity. Higher convenience yields weaken the influence of financialization on price discovery, suggesting that the relative importance of holding oil as a commodity versus a financial asset shifts over time. These findings imply that institutional investors play a significant role in oil price formation and that changes in financialization may impact the transition from oil and monetary policy effectiveness.