Effect Of Oil Price Volatility Research Articles

Examining the Relationship between Oil Prices and Stock Returns: Evidence from OECD Countries

This study uses data from the OECD countries to investigate the relationship between stock returns and oil prices. The study uses daily closing values for analysis and covers the years 2000 - 2022. Oil prices are taken as the independent variable and stock returns as the dependent variable using the panel data analysis. The analysis includes intermediary factors as GDP and inflation. The research begins with a unit root test, followed by a panel co-integration test. Finally, the panel causality test and panel regression results are interpreted. This study primarily aims to explore the effect of oil price volatility on stock returns. Results show a statistically significant positive association between stock returns and oil prices. These findings highlight the importance of oil prices as a determinant of stock returns in the financial markets and provide investors, financial institutions and policymakers valuable insights.

Oil Price Volatility and Economic Growth: Evidence from the Middle East

This paper seeks to study the effect of oil price volatility on economic growth in Middle East countries (Jordan, United Arab Emirates, Saudi Arabia, Kuwait, Qatar, and Turkey). The study's goals were achieved by utilising a range of econometric methodologies. For instance, the IPS and LLC procedures are used to study unit root qualities, while Westerlund and Edgerton's (2008) test is used to study cointegration. The findings demonstrate a long-term correlation between Oil price volatility, inflation, investment, and economic growth. The study concludes with more detailed findings regarding how oil prices affect gross domestic product growth. As such, policymakers can use it to support their decision-making.

Causal Relationships between Oil Prices and Key Macroeconomic Variables in India

India is among the largest and fastest-growing economies in the world. To continue its growth, energy is and will continue to be one of its most important considerations. With a population of over one billion, India is the third largest consumer of petroleum on the globe. To maintain this ranking, India imports a large percentage of its total oil consumption. Given India’s current position as a large importer of oil, how does oil price volatility affect the Indian economy? This paper examines the effect of oil price volatility on inflation, economic growth, and the stock market in India. Statistical tests suggest that the overall price level, the real effective exchange rate, and oil prices are negatively related to aggregate output in the long run. Granger causality test results derived from a vector error correction model support bidirectional causality between oil prices and aggregate output, indicating that a change in oil prices also affects aggregate output in the short run.

Determinants of United States - Indonesia Equity Market’s Dynamic Correlation: The Role of Commodities and Exchange Rate’s Volatilities

<p>This study aims to analyze the effect of oil price volatility, gold price volatility and exchange rate volatility on the dynamic relationship between Indonesian and United States capital market. The data used in this study are daily closing prices of oil, gold and exchange rates (USD/IDR) as well as Indonesian capital market (JKSE) and United States capital market (DJIA) composite indices during period of January 2005 to October 2020. This study uses DCC-GARCH method to calculate the dynamic correlation between two capital markets and GARCH with the GED parameter to analyze oil volatility, gold volatility and exchange rate volatility on the integration of Indonesian capital market and United States capital market. The results of this study show positive and strong results on the integration of Indonesian and United States capital markets, thus proving that the movements of Indonesian market and American market tend to be strong and mutually influence the two capital markets. Moreover, the oil, gold and exchange rates volatilities have a negative effect on the integration of the Indonesia capital market and the US capital market. This finding implies investors should take oil, gold and exchange rates volatilities in their investment consideration.</p>

Evaluating the Effect of Oil Price Volatility on Capital Expenditure of Federal Government in Nigeria

This study examined the effect of oil price volatility on federal government capital expenditure in Nigeria for the period 1993 to 2022 using secondary data from relevant government agencies. The study specifically examine the impact of Brent UK crude oil price volatility, OPEC spot rate crude oil volatility and West Texas Intermediate crude oil price volatility controlling the disruptions of oil subsidy, corruption and inflation on capital expenditure. The research employed an ex-post facto research design to produce results via Bounds test and Autoregressive Distributed Lag regression test. The long run estimate of the model report that Brent UK crude oil price volatility, OPEC spot rate crude oil volatility and West Texas Intermediate crude oil price volatility failed to report significant effect on the federal government capital expenditure in Nigeria. This shows that the oil price volatility is a short run phenomenon, that will fade out in short period, hence the reason for the high speed of adjustment of the error correction term. There is need for federal government in Nigeria to continually monitor crude oil international price and negotiate with OPEC on production output and quota. There is also need to monitor federal government’s capital expenditure pattern and revenues in critical revenue generating agencies. Federal Government should remain committed to sustaining fiscal adjustments by creating fiscal space for capital and infrastructural development.

Oil Price Volatility, Organization Capital, and Firm Performance

We examine the relationship between oil price volatility and firm performance, and the moderating role of organization capital on this relationship. Using U.S. firm-level data during the period of 1986-2017, our analysis reveals several key findings. Consistent with the real option theory, we find that oil price volatility negatively affects firm performance. However, this adverse effect of oil price volatility is reduced for firms with high levels of organization capital. Interestingly, this moderating effect of organization capital is more pronounced for firms with large cash holdings. Overall, our findings substantiate the idea that firms with high levels of organization capital can hedge oil price related volatilities effectively. Findings from several robustness tests support our key results.

Effect of oil price volatility on the trade balance in sub‐Saharan Africa

AbstractCrude oil price volatility as an important driver of the trade balance of economies has been widely documented in the literature. However, studies on the effect of oil price volatility on the trade balance in sub‐Sahara Africa (SSA) are limited. In this paper, we explore the effect of crude oil price volatility on the trade balance across 34 SSA countries using Pooled Mean Group (PMG) and Common Correlated Effect Pooled Mean Group (CCEPMG) estimators for the period January 2004 to December 2017. We find that crude oil price volatility exerts a negative effect on the trade balance of SSA countries. We further demonstrate that inflation, interest rates and exchange rates are significant transmission channels for oil price volatility to impact trade balance. We suggest that policymakers hedge as well as adopt price‐smoothing schemes to minimise the volatility of oil prices on trade balance. Again, countries should adopt an inflation‐targeting regime to ensure the stability of the general price level. Finally, central banks of the respective countries should apply a combination of foreign exchange market interventions and interest rate changes to reduce the effect of oil price volatility on their trade balance when the exchange rate is taken into account.

Impact of International Oil Price, and Its Volatility on Profitability of Top Oil and Gas Companies: The Role of Exchange Rate, Governance Institutions, and Human Development of Their Origin Country

In the current era, according to the floating industrial ratings, the topmost industry in the world is the Petroleum Marketing Industry. This sector has been able to earn high returns over the investment which has created more interest to determine major factors that are needed to be focused on while evaluating the profitability of the Oil Marketing Companies. This study explored whether this high return is due to the rise in oil prices or not. This would further establish if the rise is due to supply-side factors like the higher cost of production, or demand side, as supply-side factors would not lead to profitability. We also explore the role of other factors like volatility in oil prices and origin country institutional quality, human development, and exchange rate. Other factors such as GDP and stock market return of origin country were also taken as control. For this, the dataset of 24 oil and gas companies were taken for the year 2000 to 2018 from their annual reports. For regional comparative analysis, these companies are divided into 3 regions (Asia, Europe, America). The measures of profitability i.e. Returns on Equity (ROE) and Return on Asset (ROA) were taken as the dependent variable. Results from the panel regression showed oil prices seem to have a significant and positive impact on profitability (ROA), regional analysis also shows a strong and positive effect on both ROA and ROE in European and ROA of American based companies. Human development also seems to significantly predict ROE, overall, as well as both ROA and ROE of Asian based companies. Surprisingly, American-based companies seem to have a significant negative effect on human development. Other striking findings were the quality of institutions, which have a significant negative effect on profitability (both ROA and ROE) in Asian origin firms, however, this relationship was significant and positive in the overall sample. The exchange rate also seems to be negatively impacting both ROA and ROE overall as well as in the American sample, whereas it has a positive impact on the Asian sample. Lastly, the effect of oil price volatility on profitability remained inconclusive. The study confirms that the rise in oil price seems to be demand-driven, causing spikes in profitability, moreover, this profitability was conditional to the quality of institutions as well as human development in their country of origin.

Does Oil Price Volatility Drive Household Consumption Expenditures in Nigeria?

This paper investigates whether volatilities in oil prices influence consumer household consumption expenditure from 1995 to 2019, a period described in the literature by the weakening effect of oil price volatility on macroeconomic factors. The Vector autoregressive model's findings suggest that the unexpected changes in oil prices significantly influence household consumption expenditure in Nigeria. A one standard deviation unexpected for a change in oil prices corresponds to a 28.31 percent increase in Nigeria's consumption expenditure. Moreover, the decomposition of the variance did not affect the sign and significance of the household relationship between oil price volatility and consumption expenditure. The paper offers that the extent to which dependence on oil continues depends on the magnitude to which Nigeria's economies can continue developing alternative energy sources and improving energy conservation.JEL classification: D15, Q43 How to Cite:Ogede, J. S. (2020). Does Oil Price Volatility Drive Household Consumption Expenditures in Nigeria? Signifikan: Jurnal Ilmu Ekonomi, 9(2), 257-268. https://doi.org/10.15408/sjie.v9i2.15498.

OIL PRICE FLUCTUATIONS AND STOCK MARKET BEHAVIOR IN A RESOURCE-DOMINANT ECONOMY: CASE OF KAZAKHSTAN

During the past 10 years, the oil market has been very unpredictable and volatile, which created uneasy conditions for market participants. The remedy of increasing oil prices is considered as a positive factor for the economy of the Republic of Kazakhstan as an oil-exporting country. Using structural decomposition of vector autoregression (VAR), this study aims to examine how the whole financial system in Kazakhstan is depending on oil prices. The results suggest that the strongest factor affecting the stock index is aggregate demand, and the impact of oil production shocks on the equity market is, on average, insignificant. Such shocks can be discounted while a fall in oil prices affects financial conditions as a whole, damaging the solvency of Kazakhstan, an oil-exporting country. With the positive shock of aggregate demand, the stock market index tends to rise. There is also an effect of oil price volatility on changes in currency value, which also influences the financial situation of the country. Moreover, oil-exporting countries such as Kazakhstan can secure and support their economies with the help of “stable aggregate demand”. The focus on Kazakhstan as one of the oil-producing countries is interesting for at least two reasons. Importantly, oil-exporting countries supply oil to really strong countries concentrating on manufacturing and other industries. Besides, this study provides useful insights for countries with similar economic conditions, including similar stock market development.

Russian Stock Index volatility: Oil and sanctions

Since 2014, the Russian stock market has been under pressure due to both sanctions and a sharp drop in oil prices, which led to its increased volatility. This paper analyzes the impact of the price volatility of Brent oil and sanctions on the volatility of the Russian stock index RTS. Under volatility the paper understands both its parametric estimate obtained from the GARCH model estimation as well as non-parametric estimate — realized volatility. To estimate the effect of oil price volatility and sanctions, several cointegrated regressions were analyzed. The robustness of the results in relation to the choice of volatility assessment is demonstrated. The results show that RTS index volatility still depends on oil prices volatility in 2007—2018. This dependence is most pronounced in the periods of crisis. The paper also demonstrates the adjustment of the Russian stock market to the previous sanctions, which calls into question their long-term efficiency.

Oil Price Volatility and Stock Market Returns in an Emerging Economy: Evidence from Nigeria

The study examines the reaction of the Nigerian stock market to fluctuations in the mainstay of the Nigerian economy. Using time series data sourced from OPEC website and the Central Bank of Nigeria (CBN) Statistical Bulletin, we investigate the effect of oil price volatility on stock market returns in Nigeria during the period 1981 to 2017. Cointegration test established the long run relationship between variables, while, the Error Correction Model (ECM) and Pair-Wise Granger Causality test were used to ascertain the short run dynamics and the direction of causality between the variables of interest. The findings reveal among other things that Oil Price Volatility (OPV) has a non-significant positive effect on Stock Market Return (SMR) both in the short and long run period. Exchange Rate (EXR) and Interest rate (INT) were significant variables that influence stock market return in Nigeria during the period under review

Oil Price Volatility and Business Cycles in Nigeria

Abstract The effect of oil price volatility on the business cycle (measured as fluctuations in real GDP) in Nigeria is investigated, while controlling for effects of other variables such as inflation, exchange rate, money supply, trade openness and foreign direct investment. Volatility in real GDP and oil price is generated through the EGARCH process. The ARDL approach to cointegration and error correction modeling is employed for analysis of data covering the period from 1970 to 2015. The study finds positive and significant short-run effect of oil price volatility on real GDP volatility, and no significant long-run effect. The short-run and long-run effects of other variables on business cycle (real GDP volatility) in Nigeria are not statistically significant. This suggests that short-run fluctuations in real GDP are engendered mainly by oil price volatility. This could be attributed to the precarious dependence of the country on oil export. The paper recommends channeling of efforts by the government towards diversifying the productive base and exports of the country as measure to reduce volatility in the real GDP.

The Conductive and Predictive Effect of Oil Price Fluctuations on China’s Industry Development Based on Mixed-Frequency Data

Presently, the total supply of crude oil is sufficient, but short-term supply and demand imbalances and regional imbalances still exist. The effect of crude oil supply security and price impact cannot be ignored. As the world’s largest oil importer, China is highly dependent on foreign oil. Therefore, the fluctuation of international oil prices may impact the development of China’s various industries in a significant and differential way. However, because the available data have different frequencies, much of the recent research that addresses the effect of oil prices on industry development need to replace, split, or merge the original data, resulting in loss of the information from the original data. Using the mixed data sampling model (MIDAS(m,K,h)-AR(1)) with the first-order lag autoregressive terms of the interpreted variables, this study builds a mixed data model to investigate the effect of oil price volatility on the output of China's industries. This study expands the extant research by financial market fluctuations and macroeconomic analysis, and at the same time makes short-term predictions on the output of China’s seven main industries. The analysis results show that the mixed data regression model brings the original information contained in different frequency data into the model analysis, and utilizes the latest high frequency data of the explanatory variables to perform real-time short-term prediction of low-frequency interpreted variables. This method improves the timeliness of forecasting macroeconomic indicators and the accuracy of short-term forecasts. The empirical results show that the spot price of international crude oil has a significant and differential impact on the outputs of the seven industries in China. Among them, oil price fluctuation has the greatest impact on the output of China’s financial industry.

Determinants of oil and gas investments on the Norwegian Continental Shelf

This paper studies the investment decisions by oil and gas companies operating on the Norwegian Continental Shelf. We account for the heterogeneity across the fields by including field-specific variables, including geological and geographical variables. We find that the most important factors influencing the investment decisions are the size of the oil and gas reserves, geological variables, and the price of oil. The effect of oil price volatility is insignificant.

Determinants of Oil and Gas Investments on the Norwegian Continental Shelf

This paper studies the investment decisions by oil and gas companies operating on the Norwegian Continental Shelf. We account for the heterogeneity across the fields by including field-specific variables, including geological and geographical variables. We find that the most important factors influencing the investment decisions are the size of the oil and gas reserves, geological variables, and the price of oil. The effect of oil price volatility is insignificant.

OIL PRICE VOLATILITY: INDUSTRIAL PRODUCTION AND SPECIAL AGGREGATES

Previous research shows that volatility in oil prices has tended to depress output, as measured by nonresidential investment, gross domestic product, and aggregated measures of industrial production in several countries. This paper investigates the effect of oil price volatility on disaggregated measures of industrial production. The disaggregated measures that we examine are the special aggregates by market groups as calculated by the Federal Reserve Board. Our results are reported for three categories of special aggregates: indexes for industrial production excluding two major industries (technology and motor vehicles), energy-related special aggregates, and non-energy-related special aggregates. Our results indicate that among energy-related market groups, the effects of oil price volatility are concentrated in activities related to primary energy generation and oil and gas drilling. Among non-energy-related market groups, oil price volatility affects a broad range of special aggregates, including aggregates sorted by consumer goods and business equipment.

Analyzing the impact of oil price volatility on electricity demand: the case of Turkey

The effect of volatility on an economy has been widely discussed in previous studies, both theoretically and empirically. However, few studies have considered the effect of volatility on electricity demand. The purpose of this study is to analyze the effect of oil price volatility on electricity demand in Turkey. Annual balanced panel data on provinces of Turkey covering two different time periods, 1990–2001 and 2004–2014, are used. In this context, a dynamic panel data model is estimated using the system generalized method of moments estimation approach. The results show negative short-run effect of oil price volatility on electricity demand for the period 2004–2014. Moreover, although demand for electricity is found to be price inelastic during the period between 1990 and 2001, the results show that it is elastic during the period 2004–2014. This could be due to the electricity market liberalization policies implemented through the enactment of the Electricity Market Law in 2001. In conclusion, to minimize the costs associated with volatility, policy-makers should focus on better management of external supply and demand shocks by fiscal and monetary authorities, and on dissemination of energy efficiency and conservation applications.

Dynamics of oil price shocks and stock market behavior in Pakistan: evidence from the 2007 financial crisis period

BackgroundThe aim of this study is to investigate the effect of the oil price and its volatility on the stock market of Pakistan before and after the 2007 financial crisis period.MethodsThe analyses are carried out on daily data for the period from July 31, 2000 to July 31, 2014. This study uses several econometric techniques for the analyses, namely, the Johansen-Juselius cointegration test, generalized autoregressive conditional heteroskedasticity (GARCH) model, exponential generalized autoregressive conditional heteroskedasticity (EGARCH) model, variance decomposition method, and impulse response function.ResultsThe results of the cointegration method indicate a significant long-run association between stock market and oil prices in the pre-crisis period. The EGARCH model shows that oil price returns have a significant effect on stock market returns in both sub-periods, while the result for the GARCH model is significant only in the post-crisis period. We find a significant effect of oil price volatility on the stock market in both sub-periods from the GARCH model. Furthermore, the EGARCH model shows an asymmetric effect of oil price volatility on the stock market in the pre-crisis period. Variance decomposition shows that stock market variations are mostly explained by self-innovation. Moreover, the impulse response function results show that oil price shocks affected the stock market adversely in the pre-crisis period but positively in the post-crisis period.ConclusionsThis study suggests that economic policymakers and investors should consider the oil price as an important factor affecting stock market returns.

Oil price volatility effect on infrastructure spending in Nigeria

AbstractThis study examined the effect of oil price volatility on infrastructure spending in Nigeria, using time series data from 1960 to 2012. The data were analysed using cointegration, variance decomposition and impulse response functions to determine the effect of oil price volatility on infrastructure spending in Nigeria. The trend analysis shows that both oil price and government spending on infrastructure fluctuate together. The impulse response showed that the impact of crude oil price shock is substantial in the short run but remain stable and high in the long run which implies that the effect of crude oil price volatility could persist into the future. From these results, the empirical findings suggest that effort should be made by government to seek alternative means of financing infrastructure as oil price is unpredictable.