Market synchronicity, impact of oil price volatility on stock market index

Abstract

As one of the key energy sources, oil is considered as the backbone of many industries and plays a major role in the economic environment of a country. With the crude oil market and its dynamics having a global impact, literature widely analysed and investigated the relation between equity markets and global oil markets in the context of volatility spillover, oil shocks impact, as well as level of synchronisation. This research thereby attempts to investigate the relation between the two markets, with focus on investigating whether this relation differs based on the oil importing/exporting nature of countries. The US market and Kingdom of Saudi Arabia are taken into consideration. The study is observing the correlation between the two markets through an ordinary least square multiple linear regression methodology. Further, the paper considers policy rate change of both countries as an independent variable.