Australian Coal Company Risk Factors: Coal and Oil Prices

Examination of panel data on listed coal companies on the Australian exchange over January 1999 to February 2010 suggests that market return, interest rate premium, foreign exchange rate risk, and coal price returns are statistically significant in determining the excess return on coal companies’ stock. Coal price return and oil price return increases have statistically significant positive effects on coal company stock returns. A one per cent rise in coal price raises coal company returns by between 0.15% and 0.17%. A one per cent rise in oil price raises coal company returns by between 0.06% and 0.08%. The sensitivity of stock prices to oil price shocks suggest a role for investment in stocks that rise when energy prices increase in a well balanced portfolio and in pursuing profitable investment strategies.