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Working Paper
Institutions and return predictability in oil-exporting countries
We study whether stock market returns in oil-exporting countries can be predicted by oil price changes, and we investigate the link between predictability and the quality of each country's institutions. Returns are predictable for half the countries we consider, and predictability is stronger when institutional quality is lower. We argue that the relation between predictability and institutional quality reflects the preference of countries with weaker institutions to consume oil windfalls locally rather than smooth out the impact of windfalls by, for instance, investing the proceeds through a ...