Abstract
This study scrutinized the asymmetric impact of oil prices on stock returns in Shanghai stock exchange with data (January 2000 to December 2018) by using asymmetric ARDL model. The examined results of asymmetric autoregressive distributed lag model indicate that cointegration exists between the oil prices and the stock returns. Results of asymmetric autoregressive distributed lag model confirm that both in the long run and the short run increase in oil prices have a negative impact on the stock returns of Shanghai stock exchange while decrease in the oil prices has a positive impact on the stock returns. The examined results of this study recommend that oil prices dynamically contribute incompetence in stock prices in such a way that impact the profits of investors in stock market.
Highlights
In modern era crude oil is recognized an essential factor to manufacture any product in any economy, crude oil prices variations can affect the economy growth and development either in positive or negative way
Research used linear cointegration model to examine the long run and the short run association, but we study the non-linear long run and short run associations between the study variables, because it necessary to check that what is the influence of raise and fall in oil prices on the stock returns
It is essential to examine the stationarity of each variable that none of the variable is stationary at I(2) before applying asymmetric ARDL model
Summary
In modern era crude oil is recognized an essential factor to manufacture any product in any economy, crude oil prices variations can affect the economy growth and development either in positive or negative way. Vo [1] stated that rise in oil prices causes to raise the production costs that causes to raise the inflation rate and high inflation rate in economy adversely affect the economic growth. Ciner [3] stated that prices of oil can impact the stock returns either in positive or negative ways. Bouri [4] stated that raise in the prices of oil causes to raise the prices of the equity markets share that adversely affect the income of the investors which lead to instability in the financial markets and the economic activities in any economy.
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