EFFECT OF OIL FLUCTUATION ON STOCK MARKET RETURN: AN EMPIRICAL STUDY FROM INDIA

Priyanka Aggarwal,Manoj Kumar Manish

doi:10.32479/ijeep.8802

Priyanka Aggarwal, Manoj Kumar Manish

Open Access

https://doi.org/10.32479/ijeep.8802

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Abstract

This paper examined the impact of oil price on Indian stock market. Data used for the study are monthly datasets from the period January 2000 to November 2018 obtained from Bombay Stock Exchange (BSE) and World Bank. BSE index is taken as dependent variable whereas oil price, inflation, exchange rate and real interest rate taken as independent variable. Augmented Dickey-Fuller (ADF) unit root test is used to make it certain that variables should be stationary as most of the economic data are non-stationary in nature. The Auto Regressive Distributed Lag (ARDL) model is used here and bound testing test method to cointegration is employed to test for long-run association among our time series dataset. Our finding shows that oil price changes have a significant as well as positive impact of Indian stock market return in both long run and short run. Impact of inflation and real interest rate have negative relationship with Indian stock market but insignificant for long run. Log of exchange rate have positive relation with Indian stock market, but it is also insignificant.

Highlights

Oil is considered the world’s dominant fuel, and its global market is the most important of the world energy markets (BP Statistical Review of the World Energy, 2016)
Since Bombay stock exchange (BSE) index is the true representative of the Indian economy, so BSE Index is taken as dependent variable, where oil price, inflation, exchange rate and real interest rate are taken as independent variables
It clearly shows that the null hypothesis of unit root is rejected in the case of INFLATION, RINTRET and LNEXCHRATE variables in the first difference at 1% level of significance and these variables are integrated of order one [I(1)]

Summary

INTRODUCTION

Oil is considered the world’s dominant fuel, and its global market is the most important of the world energy markets (BP Statistical Review of the World Energy, 2016). A considerable volume of work has emerged examining the connections between oil price shocks and stock returns and between oil price shocks and stock market volatility (Kang et al, 2015; Lee et al, 2017; Aggarwal and Saqib, 2017; Smyth and Narayan, 2018). It has been seen that fluctuation of prices of oil has dominant effect on economy of the world. It is still not clear how much fluctuation of oil price are affecting the market. The objective in this paper is to investigate how structural oil price shocks drive the contemporaneous stock market return and volatility relationship

LITERATURE REVIEW

DATA AND METHODOLOGY

RESULTS AND DISCUSSIONS

CONCLUSION

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