An Empirical Study on the Dynamic Relationship Between Oil Prices and Indian Stock Market PDF Download

Author: Tarak Nath Sahu
Publisher:
ISBN:
Category :
Languages : en
Pages : 16

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Book Description
Purpose- This study aims to investigate the dynamic relationships between oil price shocks and Indian stock market.Design/methodology/approach- The study used daily data for the period starting from January 2001 to March 2013. In this study, Johansen's cointegration test, vector error correction model (VECM), Granger causality test, impulse response functions (IRFs) and variance decompositions (VDCs) test have been applied to exhibit the long-run and short-run relationship between them.Findings- The cointegration result indicates the existence of long-term relationship. Further, the error correction term of VECM shows a long-run causality moves from Indian stock market to oil price but not the vice versa. The results of the Granger causality test under the VECM framework confirm that no short-run causality between the variables exists. The VDCs analysis revealed that the Indian stock markets and crude oil prices are strongly exogenous. Finally, from the IRFs, analysis revealed that a positive shock in oil price has a small but persistence and growing positive impact on Indian stock markets in short run.Originality/value- The study would enhance the understandings of the interaction between oil price volatilities and emerging stock market performances. Further, the study would enable foreign investors who are interested in Indian stock market helps in understanding the conditional relationship between the variables.

Author: Dr. Arpit Sidhu
Publisher:
ISBN:
Category :
Languages : en
Pages : 8

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Present paper investigates the relationship among oil prices and exchange rates in Indian market. Present paper uses two econometrics tools of dependence to establish co-movement amongst the variables viz. Johansen co-integration and Granger Causality tests to demonstrate that the foreign exchange value of the US dollar (Crude oil prices) has a substantial impact on the prices of crude oil (Exchange rate of US dollar) in long-term as well as short-term or not. The results evidenced that data is stationary at first difference order. However, Johansen co-integration suggests no co-integrating equation. It signifies the possibilities to take advantage from arbitrage activities in the long-run through diversification of the investment portfolios in these two non-integrated markets. Granger causality and Wald statistics evidences unidirectional causality flowing from exchange rate to oil prices but not vice-versa. Since exchange rate granger causes the oil prices, the participants in the foreign exchange market can use information of exchange rates to improve the forecast of crude oil prices. The results of present study have policy implications for oil importing countries to frame foreign exchange risk management, fiscal and monetary policies in such a way to control exchange rate induced pressures on crude oil prices as crude oil prices predominantly affect the emerging oil dependent industrialized economies like India.

Author: Bhaskar Bagchi
Publisher: Emerald Group Publishing
ISBN: 1786355531
Category : Business & Economics
Languages : en
Pages : 225

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Book Description
This book examines the dynamic relationship and volatility spillovers between crude oil prices, exchange rates and stock markets of emerging economies. Unfortunately very little research has been conducted to analyze the volatility spillovers and dynamic relationship between crude oil prices, exchange rates and stock markets of India.

Author: Shekhar Mishra
Publisher:
ISBN:
Category :
Languages : en
Pages : 19

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Book Description
The present study aims to investigate the long and short run relationship between Crude Oil Price, Exchange Rate Volatility and Stock Price in India using ARDL-UECM approach. The study used monthly data from the period April 2000 to January 2015. The cointegration result reveals that crude oil price tends to have long run relationship with exchange rate and stock price and changes in the independent variables have significant impact on volatility of crude oil prices. The long run estimates of ARDL Process indicate that impact of exchange rate volatility on crude oil is negative whereas the interaction between NSE Stock price and crude oil price is positive. The Short Run Dynamic coefficients associated with long run relationships reveals that the estimated error correction coefficient is negative which indicates that adjustment process from short run deviation is quite slow. The analysis would enhance the understanding of dynamic interaction between the crude oil price, exchange rate and stock price. The empirical outcome is of wider interest and has large implications for market integration, policy makers and investors at large.

Author: Saad AlShahrani
Publisher:
ISBN:
Category :
Languages : en
Pages : 9

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Using an auto-regressive distributed lag (ARDL) model approach, this paper empirically attempts to shed light on the dynamic relationship between oil prices and the total real stock prices in Saudi Arabia, one of the fastest growing economies in the Middle East and North Africa and the largest oil producing country in the world, with a large current account surplus. The seemingly unrelated regression estimation (SURE) model is used to study the economic activity of oil price fluctuations on each sector of the stock market sectors. Then, we test the hypothesis of whether the current market value of total stock in Saudi Arabia significantly depends upon the lagged market value of stock and real oil prices, and which sectors of the Stock Market are not significantly influenced by changes in oil prices. Findings suggest that oil price movements affect the macro-economy and oil price movements affect economic activity. Further, this study suggests oil prices can play a big role in explaining stock price movements.

Author: Tarak Nath Sahu
Publisher:
ISBN:
Category :
Languages : en
Pages : 14

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Book Description
Oil is one of the most important forms of energy and is a significant determinant of global economic performance. Commodities like oil are fairly homogeneous and internationally traded. The impact of dollar nominated oil prices on stock prices may not be quite relevant for Indian context. In this context, the study of crude oil prices in dollar terms along with the exchange rate would be more meaningful to understand the impact of oil prices on stock market. The study investigates the dynamic relationships between oil price, exchange rate and Indian stock market during 1993 to 2013. The estimated results of the Johansen's cointegration test and vector error correction model suggest that there exist a long run cointegrating relationships between crude oil price and Indian stock indices, but it cannot be said with sufficient confidence that the direction of the relation in the long run is from the oil price to the Sensex. The Granger causality test also reveals that the volatility of stock prices in India can be explained to cause the movement of oil price and exchange rate in short run. The observed relationship between oil price and stock indices is not due to the effect of the exchange rate fluctuations, because the change in exchange rate has no significant impact on oil prices or stock prices in India during the study period. The variance decomposition analysis reveals that the Indian stock prices are strongly exogenous in the sense that the crude oil price or exchange rate explains only a very small portion of the forecast variance error of the market index. Finally, from the impulse response functions analysis it is noticed that a positive shock in one variable have a persistent and prolonged effect on other variables.

Author: Stelios Markoulis
Publisher:
ISBN:
Category :
Languages : en
Pages :

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Book Description
This paper investigates the relationship between oil prices and stock market returns for the G7 and the BRIC countries for the period 1991-2016 using co-integration and a vector error correction model. Results reveal that there is no long-run relationship between oil prices and the stock market indices of the G7 countries. However, they also reveal that there is a long-run relationship between oil prices and the stock market indices of three out of the four BRIC countries (Brazil, China and Russia). This result appears to be broadly aligned with the idea that over the past quarter of a century emerging countries have been more exposed to oil prices (either as producers or consumers) than developed ones. Furthermore, from an investments' and international portfolio management perspective, it seems that there might be benefits from diversification when holding the stock market index of a G7 country or India and oil assets since these appear to be segmented. On the other hand, such benefits might not be applicable in the case of the stock markets of Brazil, China or Russia and oil assets as these seem to be integrated.

Author: Saurabh Singh
Publisher:
ISBN:
Category :
Languages : en
Pages : 13

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Book Description
This paper attempts to investigate empirically the dynamic relationship among crude oil price, exchange rate and Indian stock market. Using daily data of Crude oil price, Dollar-Rupee value and Nifty returns from April 2010 to March 2015, correlation, regression and Granger-causality approach in a bi-variate VAR framework has been used to investigate the causality between crude oil and nifty returns; exchange rate and nifty returns. Augmented Dickey Fuller (ADF) test has been used to test whether the data is stationary or not. The outcome of the study was there is a significant negative correlation between nifty returns and exchange rate and significant positive correlation between nifty returns and crude oil, and a unidirectional causality running from nifty returns to exchange rates and crude oil price to nifty returns.

Author: Vanita Tripathi
Publisher:
ISBN:
Category :
Languages : en
Pages : 28

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Book Description
This paper examines the long run and short run dynamics among oil prices, exchange rates and stock prices in India (one of the fastest growing emerging markets in the world) over the most recent 15 year period 1997-2011. Using Johansen's Co integration test we find the existence of long run equilibrium relationship among oil market, foreign exchange market and stock market in India. The short term dynamics among the three markets are analyzed using Vector Autoregression (unrestricted as well as VECM), VAR causality/Block Exogeneity Wald test and Impulse response analysis. We find unidirectional causality from stock market to oil market. An impulse originating in foreign exchange market results in a profound drop in stock as well as oil prices and is statistically significant for about three weeks in oil market and two weeks in stock market. The domino effect of up-waves in stock market is positive for oil market and remains statistically significant for few weeks, while being of opposite tendency in foreign exchange market. The optimism of oil market bulls up stock market in India while creating bearish trends in foreign exchange market. An assessment of impulse response graphs in pre-crisis, during crisis and post crisis period exhibits that the riposte of all the variables to a shock generating from within stays for a relatively longer period during crisis as compared to pre and post crisis period. These results have wider implications for market integration, policy makers and investors at large. Since these markets are integrated rather than segmented, from the perspective of investments, risk reduction cannot be achieved in the long run by holding assets from these markets in the same portfolio. However diversification opportunities are not ruled out in the short run. Stock market turns out to be the leader in all the three markets especially after the recent financial crisis. Rapidly rising stock prices in India signal the expectation of higher economic growth ahead. If the stock prices get trapped in a bubble, however, oil prices will overshoot in relation to economic fundamentals.

Author: Sanjeeta Shirodkar
Publisher:
ISBN:
Category :
Languages : en
Pages : 9

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This paper has made an attempt to evaluate the combined impact of crude oil prices and exchange rate on the performance of Indian stock market. As the impact of dollar nominated oil prices on stock prices may not be quite relevant for Indian context. Therefore, in this study WTI Crude oil prices per Dollars along with the USD/Rupee exchange rate would be more meaningful and relevant to understand the impact of oil prices on stock market by using monthly data from 2003 to 2016 for S&P CNX Nifty Index, WTI Crude oil prices per Barrel (Dollars) and Dollar/Rupee Exchange rate. All the series were found to be stationery at First difference. The Granger causality tests revealed that there exists a Bi directional causality between stock prices and exchange rates in the short run i.e. stock prices lead exchange rates in the short run, but result of Johansen cointegration suggested that there is no long run relationship between these two financial variables. The results of the Johansen cointegration test suggest absence of any long term relationship between WTI crude oil price, USD/Rupee exchange rate and stock prices in India. The result of forecast error variances suggested that USD/Rupee exchange rate is influenced by Stock market performance. The forecast error variances of USD/Rupee exchange rate is significantly explained by the value of Nifty. Results also indicate that the values of oil price and exchange rate are comparatively less exogenous than the Indian stock market. Particularly, the contribution of Stock market shocks to the USD/Rupee exchange rate is greater than that of WTI Crude oil price shocks in all the periods.