An empirical study on the dynamic relationship between oil prices and Indian stock market

Abstract

Purpose – This study aims to investigate the dynamic relationships between oil price shocks and Indian stock market. Design/methodology/approach – The study used daily data for the period starting from January 2001 to March 2013. In this study, Johansen's cointegration test, vector error correction model (VECM), Granger causality test, impulse response functions (IRFs) and variance decompositions (VDCs) test have been applied to exhibit the long-run and short-run relationship between them. Findings – The cointegration result indicates the existence of long-term relationship. Further, the error correction term of VECM shows a long-run causality moves from Indian stock market to oil price but not the vice versa. The results of the Granger causality test under the VECM framework confirm that no short-run causality between the variables exists. The VDCs analysis revealed that the Indian stock markets and crude oil prices are strongly exogenous. Finally, from the IRFs, analysis revealed that a positive shock in oil price has a small but persistence and growing positive impact on Indian stock markets in short run. Originality/value – The study would enhance the understandings of the interaction between oil price volatilities and emerging stock market performances. Further, the study would enable foreign investors who are interested in Indian stock market helps in understanding the conditional relationship between the variables.

Research on Sustainable Development of the Stock Market Based on VIX Index

“…Ko and Lee point out that the relationship between uncertainty in international economic policy and stock prices is usually negative, however that it changes over time [18]. From January 2001 to March 2013, Nath Sahu et al showed that there is a long-term relationship between oil and India's stock market [19]. They also confirm that there is no checking variable between short-term causality and reveal that a positive shock to oil prices has a small but sustained positive impact on Indian stocks in the short term.…”

Gold-oil-exchange rate volatility, Bombay stock exchange and global financial contagion 2008: Application of NARDL model with dynamic multipliers for evidences beyond symmetry

“…We have identified the following four most important research gaps in the existing literature. Firstly, in existing literature number of research articles have only explored linear linkages between stock indexes, exchange rate fluctuations, oil price volatilities, and gold prices by utilizing linear models like VECM (Badry, 2019;Keswani & Wadhwa, 2018;Neveen, 2018;Rajesh, 2019;Sahu et al, 2014;Shiva & Sethi, 2015), VAR (Areli Bermudez Delgado et al, 2018;Ghulam, 2018;Huang et al, 2018), ARDL modeling approach (Ho, 2018;Singhal et al, 2019) and limited efforts have been made to explore the asymmetrical impact of Exchange rates-Gold-Oil price volatility on stock indexes by using NARDL model by (Shin et al, 2014).…”

Nexus between crude oil and stock market return: case of India

“…Bhunia (2013) investigated the co-integration relationship among crude oil prices, domestic gold price and stock price indices in India and found that there exists a long term relationship among selected variables. Sahu et al (2014), studied the impact of changed crude oil prices on stock markets and found a long term co-integrating relationship between these two variables and volatility of crude oil price affects the volatility of stock prices in India. Bhat (2014) studied the linear and nonlinear causal nexus between oil price shocks and sock returns in India using standard VAR model and Diks and Panchenko (2006) frameworks and found the evidence of unidirectional causality from stock returns to crude oil price changes.…”

“…High interest cost further will subdue corporate earnings and also attract investors towards bond markets leading to fall in stock prices (Kapusuzoglu, 2011). India is having a very meager production of crude oil and maximum of requirement is filled up through imports from OPEC countries (Sahu et al, 2014). Gisser and Goodwin (1986) argued that crude oil being an important input used in production of many goods and services, an increase in price of the crude will affect the cash flow of firms.…”