CO INTEGRATION AND CAUSAL RELATIONSHIP AMONG CRUDE OIL PRICES, EXCHANGE RATE AND STOCK MARKET PERFORMANCE: AN EVIDENCE FROM INDIA
Keywords:
Cointegration, Granger Causality, VAR, Variance DecompositionAbstract
This paper has made an attempt to evaluate the combined impact of crude oil prices and exchange rate on the performance of Indian stock market. As the impact of dollar nominated oil prices on stock prices may not be quite relevant for Indian context. Therefore, in this study WTI Crude oil prices per Dollars along with the USD/ Rupee exchange rate would be more meaningful and relevant to understand the impact of oil prices on stock market by using monthly data from 2003 to 2016 for S&P CNX Nifty Index, WTI Crude oil prices per Barrel (Dollars) and Dollar/Rupee Exchange rate. All the series were found to be stationery at First difference. The Granger causality tests revealed that there exists a Bi-directional causality between stock prices and exchange rates in the short run i.e. stock prices lead exchange rates in the short run, but result of Johansen cointegration suggested that there is no long run relationship between these two financial variables. The results of the Johansen cointegration test suggest absence of any long term relationship between WTI crude oil price, USD/Rupee exchange rate and stock prices in India. The result of forecast error variances suggested that USD/Rupee exchange rate is influenced by Stock market performance. The forecast error variances of USD/Rupee exchange rate is significantly explained by the value of Nifty. Results also indicate that the values of oil price and exchange rate are comparatively less exogenous than the Indian stock market. Particularly, the contribution of Stock market shocks to the USD/Rupee exchange rate is greater than that of WTI Crude oil price shocks in all the periods.
Downloads
References
Adebiyi, M., Adenuga, A., & Abeng, M. a. (2010). Oil Price Shocks, Exchange Rate and Stock Market Behaviour: Empirical evidence from Nigeria.
http://www.africametrics.org/documents/confrence09/paper, 1-41.
Agrawal, D. G. (2010). A Study of Exchange Rates Movement and Stock Market Volatility. International Journal of Business and Management, 62-73.
Basher, S. A., Haug, A. A., & Sadorsky, P. (2010). Oil Prices, Exchange Rates and Emerging Stock Markets. Otago: University of Otago Economics Discussion Papers No.1014.
Dhaoui, A., & Khraief, N. (2014). Empirical Linkage between Oil Price and Stock Market Returns and Volatility: Evidence from International Developed markets. Economics-ejournal, 1-29.
Fatima, T., & Bashir, A. (2014). Oil Price and Stock Market Fluctuations: Emerging Markets (A comparative study of Pakistan and China). International Review of Management and Business Research, Vol.3, 1959-1976.
Gulathi, D., & khakani, M. (2012). Relationship Between Stock Market and Foreign Exchange Market in India: An Empirical Study. Pacific Business Review International, 66-71.
Hidhayathulla, D., & Mahammad, B. R. (2014). Relationship between Crude oil price and Rupee, Dollar Exchange Rate: An Analysis of Preliminary Evidence. IOSR Journal of Economics and Finance (IOSR-JEF), 1-4.
Huang, R. D., Masulis, R. W., & Stoll, R. H. (1996). Energy shocks and Financial Markets. The Journal of Futures Markets, 1-27.
Hussin, M. Y., Muhammad, F., Abu, M. F., & Razak, A. A. (2012). The Relationship between Oil Price, Exchange Rate and Islamic Stock Market in Malaysia. Research Journal of Finance and Accounting, 83-92.
Imarhiagbe, S. (2010). IMPACT OF OIL PRICES ON STOCK MARKETS: EMPIRICAL EVIDENCE FROM SELECTED MAJOR OIL PRODUCING AND CONSUMING COUNTRIES. Global Journal of Finance and Banking Issues Vol. 4. No. 4., 15-31.
Jennings, R. J. (2012). Crude oil prices and Equity Markets: A global perspective. Wilmington: University of North Carolina.
Kumar, M. (2014). The Impact of Oil Price Shocks on Indian Stock and Foreign Exchange Markets. ICRA BULLETIN, 57-88.
Kutty, G. (2010). THE RELATIONSHIP BETWEEN EXCHANGE RATES AND THE RELATIONSHIP BETWEEN EXCHANGE RATES AND. North American Journal of Finance and Banking Research Vol. 4. No. 4., 1-12.
Malarvizhi, K., & Jaya, D. M. (2012). AN ANALYTICAL STUDY ON THE MOVEMENT OF NIFTY INDEX AND EXCHANGE RATE. International Journal of Marketing and Technology, 274-282.
Masih, R., Peters, S., & De Mello, L. (2011). Oil price volatility and Stock Market fluctuations in an emerging markets: Evidence from South Korea . Energy Economics, Vol. 33, Issue 5, , 975-986.
Najaf, R., & Nazaf, K. (2016). A STUDY OF EXCHANGE RATES MOVEMENT AND STOCK MARKET VOLATILITY. International Journal of Research- Granthalayah, 70-79.
Nath, G. C., & Samanta, G. P. (2003). Integration between Forex and Capital Markets in India: An Empirical Analysis. Social Science Research Network, e-Library, 1-11.
Olufisayo, A. O. (2014). Oil Price and Stock Market: Empirical Evidence from Nigeria. European Journal of Sustainable Development, 33-40.
Pathak, R. (2009). TESTING FOR GRANGER CAUSALITY IN FUTURES VOLUME AND STOCK RETURNS RELATION. Hydrabad: ICFAI Business School.
Pavlova, N. G. (2011). The influence of cahange in crude oil prices on equity market returns. Aarhus: Aarhus School of Business, Aarhus University.
Poornima, D. S., & Ganeshwari, M. (2013). Relationship between Exchange Rates and Stock Market Index: Evidence from the Indian Stock Market. International Journal of Science and Research (IJSR).
Sahu, T. N., Bandopadhyay, K., & Mondal, D. (2014). Crude Oil Price, Exchange Rate and Emerging Stock Market: Evidence from India. Jurnal Pengurusan 42, 75 - 87.
Siddique, M. M. (2014). Oil price fluctuation and Stock Market performance: The case of Pakistan. Journal of International business and Economics, 47-53.
Zakaria, Z., & Shamsuddin, S. (2012). Relationship between Stock Futures Index and Cash Prices Index: Empirical Evidence Based on Malaysia Data. Journal of Business Studies Quarterly, 103-112.
Zhang, Y. (2013). The Links between the Price of Oil and the Value of US Dollar. International Journal of Energy Economics and Policy, 341-351.
