Impact of Oil Prices on Stock Returns: Evidence From Pakistan’s Stock Market

Abstract

Very few studies have investigated the movement in stock returns that result due to changes in oil prices. In recent years due to cooling down of China, unveiled oil reserves of Iran, decreasing demand worldwide and discovery of shale gases the world has experienced a large fall in the oil prices. These changes are also affecting performance of manufacturing and other associated companies in countries all over the world. Pakistan has also been affected by these changes in many ways. Especially, the returns on stock markets have been affected a lot by the variations in the oil prices. This paper using monthly data set from years 2014 to 2016 of the non-financial firms operated in Pakistan Stock Exchange (PSX), investigates the effect of variation in oil prices on returns on stock. Results from the panel data analysis indicate a negative relationship between the variables. Since, Pakistan is an oil importing, movement in the prices contribute towards affecting the production cost in a positive manner which in turn affects the execution of the enterprises as well as returns of the stocks negatively.

The Effect of Crude Oil Price Shocks on Indonesia Stock Market Performance

“…There are several studies from some researchers for the relationship between crude oil price and stock markets in various countries, such as Hamilton (1983), Kaneko & Lee (1995); Kang, Ratti, & Vespignani (2016); and Killian & Park (2009) in the US; Masih, Peters, & De Mello (2010) in South Korea; Hasan & Ratti (2012) in Australia; Olsen & Henriz (2014) in the OECD countries; Najaf & Najaf (2016) in Pakistan and Malaysia; and Atiq & Farhan (2019) in Pakistan. These studies conclude that oil price changes have negative effects on the stock market returns.…”

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“…Lastly, the effect of oil prices was also determined to be significant in the short and long term. It has also been supported in the study of Atiq and Farhan (2018) that prices of oil globally have a high impact on the country's economic prosperity and development that influence the stock returns.…”

“…The developments of the energy market that include crude oil, gas, coal, and other elements or utilities are many factors that impact energy utilities. Prices of oil globally have a high impact on the country's economic prosperity and development that influence the stock returns (Atiq & Farhan, 2018). H5: There is a positive impact of the Oil prices on the stock returns at the Netherlands.…”

The Asymmetric Impact of Oil Price Shocks on Sectoral Returns in Pakistan: Evidence from the Non-Linear ARDL Approach

“…Some countries such as China observed that their growth rate improved while Japan was in recession, and European countries such as Germany saw that their economic growth was declining, these being the main reasons that are considered responsible for the reduction in oil prices. Along with the movements in the supply and demand of oil price, the whole world has also opened up to the position of environmental friendliness and efficient lifestyle because crude oil has been substituted with biofuel (Atiq et al 2018).…”