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One of the important study conducted which
examined the volatility of oil prices and its impact on stock exchange returns.
The results shown significant results and negative impact had been observed on
stock market. Moreover, examined asymmetric relation of oil price and results
suggested that positive change in oil price had larger impact on economy and
financial market  (Sadorsky, 1999).  Afterward Sadrosky (2001) expanded his
research to Canada and found that Canadian market also sensitive to oil price
and interest rate risk. Multifactor arbitrage pricing theory approach was used.  

After conducting extensive study on US and
Canadian stock market also focused on emerging and developing markets. Investigated
21 emerging stock market returns, in which India and Pakistan was also
included. On the first time Pakistan was focused for this study by using daily,
weekly and monthly data (1992-2005) using CAPM multifactor model. The results
showed statistically significant results that oil prices influence the emerging
markets. And also, the evidence provided about the asymmetric effects, (Basher &
Sadorsky, 2006).  On the other hand,
investigated the oil shocks and stock markets of five countries which are
widely known as Gulf Cooperation Council (i.e. Saudi Arabia, Bahrain, Oman, Abu
Dhabi & Kuwait). During the sample period the oil prices had been doubled
so these markets had huge excess of cash and therefore affected the market
performance positively (Zarour, 2006). 

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Similarly, also studied same relationship GCC
countries. But he studied this relationship in context of non-linearity by employing
rank test of non linear cointegration analysis which was newly developed. All
the previous studied suggested that oil price and GCC stock markets are not
related therefore he argued that it could be resulted that only linear
relationship have been studied. While his study concluded that oil price
affected GCC counties in non linear relation.  Also found the under reaction of investor in
this relation and they argued that the countries having high oil consumption
per capita had strong impact than others (Maghyereh & Al-Kandari, 2007).
Moreover, they argued as the lags increases the said relation became stronger
and their findings support the findings of (Maghyereh, 2004) and (Hong &
Stien, 1999). 

Another recent research in this context had published,
investigated the impact of oil prices fluctuations on stock return. Studied
this relationship in USA and other 13 European countries. In their model they
had also catered industrial production, interest rates, stock return and oil
prices. They found statistically significant results that oil importing
countries had negative impact of oil prices with one month lag on stock market,
except Norway, which is an exporting country that’s why positive effect had (Park
& Ratti, 2008). 

Nonlinear linkage was also tested by taking the
data of daily closing prices of oil futures contracts and S 500 stock
index and. They didn’t found any linear causality in oil and stock returns but
they found evidence for non linear causality in US stock market Ciner, 2001). There
is also studied the same non linear association in US market and found non
linear relationship in US stock market has existed. And the stock market had
been negatively affected by its lagged value and oil price (Odusami, 2008). 

In the same time period  nonlinear effects that oil price shocks have
on stock returns tested using Markov-switching models, study, from a set of
international stock indexes advocates that an increase in oil prices has a
negative and significant impact on stock prices in one state of the economy,
whereas this effect is significantly dampened in another state of the economy (Reboredo,
2008). The US stock market for the relationship of stock market affects of
change in oil prices due to demand and supply.  Suggested that these oil shocks whether by
demand side or supply side jointly affect the stock market 22% in long run (Killian
& Park, 2009). 

The long run relationship between oil and world
market indices of OECD countries. The results suggested negative relationship between
said variables but he argued that this association became weak after 1999
period (Miller & Ratti, 2009).  The impact
of oil prices on the energy sector and observed the results especially in the
context of current economic crisis (Constantin & Gruici, 2010).

The study of oil prices impact on stock prices
of Vietnam market. Found that all the variables are cointegrated and oil prices
have positive and statistically significant impact on stock market (Narayan
& Narayan, 2009).  Parallel
relationship is also examined by in 5 stock markets (US, UK and Germany) and
oil exporting economies (Canada and Norway) found that the volatility of stock
market and oil prices are not constant over time and it strongly depends upon
the economy structure and status it was also found that aggregate demand shocks
and defensive demand shocks be likely to put into a negative result on stock
market relationship, while no outcome from the supply-side oil price shocks can
be reported (Antonakakis & Filis, 2013).

The study to examined this relationship in
Ghana and Nigeria, found Nigeria showed weak support bad news affect negatively
on stock return as compare to good news while in Ghana this effect is vice
versa (Aliyu, 2012). And in Taiwan studied spot oil price and Taiwan stock
prices relationship and found that disclosure of significant differences
between oil shocks across time and companies (Chang & Che, 2011). The
relationship of oil price impact on stock market in Greece. Researched Greek
stock market by founding the negative effects on stock market (Papapetrou,
2001).

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