Abstract
This study explores the connection between oil price, stock prices, and exchange rate in Kazakhstan employing a monthly data from October 2007 to December 2017. Time series data were collected from National Bank of Kazakhstan, Kazakhstan Stock Exchange, and Energy Information Administration. Both bivariate and multivariate cases were employed. At the same time, the Johansen and Juselius cointegration procedures were employed in the study. The analysis was conducted for bivariate as well as multivariate cases. Empirical tests demonstrate that all the series are nonstationary in levels but stationary in differences. Results of this analysis do not find long-run correlation between the variables in a bivariate model, however, detect one in a multivariable model. Results demonstrate that stock prices and exchange rate are affected by oil price in Kazakhstan based on Granger causality test. Our findings imply that policy wise, monetary authorities in Kazakhstan in attaining their exchange rate policy objective should be considering the implications for financial market. These results are important to regulatory exchange authorities when deciding on policy to improve the market conditions.
Highlights
Based on the International Monetary Fund Report, starting the early 2000, the Kazakhstani economy was growing rapidly with the average growth rate of 9% annually with the most of this growth attributed to the oil export
This section describes main results of integration and cointegration tests that were performed for analyzing the stationarity properties of data and Granger causality tests to investigate the direction of causation among variables
This study investigates the relationship between the oil price and real exchange rate of Kazakhstani tenge and interaction between oil price and stock prices
Summary
Based on the International Monetary Fund Report, starting the early 2000, the Kazakhstani economy was growing rapidly with the average growth rate of 9% annually with the most of this growth attributed to the oil export. Kazakhstan’s dependence on these export revenues makes its economy vulnerable to external oil price fluctuations. With sharp spikes and drops, oil prices fluctuations could have substantial destabilizing effect on Kazakhstani economic activity. Both markets would be affected and, in turn, have adverse impact on economic activity in the country. Questions of how foreign exchange markets and stock markets are affected by oil prices, whether these markets are related, and what is the direction of the relationship have been receiving extensive attention. Despite the existing fields of literature on relations between oil prices and stock prices, and interactions between oil prices and exchange rates, there is a lack of research on relationships between these two fields, especially in the framework of emerging markets.[1,2]
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