Dynamics of oil price shocks and emerging stock market volatility: a generalized VAR approach
Purpose – This study aims to establish the dynamic relationship between international crude oil prices and Indian stock prices represented by the Bombay Stock Exchange (BSE) energy index. Design/methodology/approach – Using Johansen’s cointegration test, vector error correction (VEC) model, impulse...
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Emerald Publishing
2021-07-01
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| Series: | Vilakshan (XIMB Journal of Management) |
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| Online Access: | https://www.emerald.com/insight/content/doi/10.1108/XJM-07-2020-0018/full/pdf?title=dynamics-of-oil-price-shocks-and-emerging-stock-market-volatility-a-generalized-var-approach |
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| author | Megha Agarwalla Tarak Nath Sahu Shib Sankar Jana |
| author_facet | Megha Agarwalla Tarak Nath Sahu Shib Sankar Jana |
| author_sort | Megha Agarwalla |
| collection | DOAJ |
| description | Purpose – This study aims to establish the dynamic relationship between international crude oil prices and Indian stock prices represented by the Bombay Stock Exchange (BSE) energy index. Design/methodology/approach – Using Johansen’s cointegration test, vector error correction (VEC) model, impulse response function and variance decomposition test the study tries to ascertain the short-term and long-term dynamic association between the oil price shock and the movement of stock price and Granger causality test is applied to find out the nature of causality. Findings – Considering vector autoregression estimation, the present study analyzes the relationship between the variables and tries to make a valid conclusion. The result of the co-integration test exhibits the presence of a long-term association between these two macro-economic variables during the period under study. Also, in the short-run VEC Granger causality result reveals that the movement of international crude oil price significantly influences the Indian stock price. Research limitations/implications – To get a more robust result the study can be further extended by taking a longer time period with data of shorter time-frequency such as daily or weekly and further by using more sophisticated econometric and statistical tools. Further, the study can be extended to firm-level investigation considering the forward trading concentration with the Indian oil basket. Social implications – In today’s globalized era, forecasting of share price movement helps investors in predicting the market and invest accordingly. Through this liquidity of the markets enhance and markets become more active in the global arena. Originality/value – This study represents fresh findings in the changing time period the linkage between crude oil prices and stock prices which are of value to the academicians, researchers, policymakers, investors, market regulators, etc. |
| format | Article |
| id | doaj-art-4e55ab5b0bd4492d882b4fd7b146b1f4 |
| institution | Kabale University |
| issn | 0973-1954 |
| language | English |
| publishDate | 2021-07-01 |
| publisher | Emerald Publishing |
| record_format | Article |
| series | Vilakshan (XIMB Journal of Management) |
| spelling | doaj-art-4e55ab5b0bd4492d882b4fd7b146b1f42025-01-02T02:32:37ZengEmerald PublishingVilakshan (XIMB Journal of Management)0973-19542021-07-0118210612110.1108/XJM-07-2020-0018657962Dynamics of oil price shocks and emerging stock market volatility: a generalized VAR approachMegha Agarwalla0Tarak Nath Sahu1Shib Sankar Jana2Department of Commerce, Vidyasagar University, Midnapore, IndiaDepartment of Commerce, Vidyasagar University, Midnapore, IndiaDepartment of Commerce, Belda College, Belda, IndiaPurpose – This study aims to establish the dynamic relationship between international crude oil prices and Indian stock prices represented by the Bombay Stock Exchange (BSE) energy index. Design/methodology/approach – Using Johansen’s cointegration test, vector error correction (VEC) model, impulse response function and variance decomposition test the study tries to ascertain the short-term and long-term dynamic association between the oil price shock and the movement of stock price and Granger causality test is applied to find out the nature of causality. Findings – Considering vector autoregression estimation, the present study analyzes the relationship between the variables and tries to make a valid conclusion. The result of the co-integration test exhibits the presence of a long-term association between these two macro-economic variables during the period under study. Also, in the short-run VEC Granger causality result reveals that the movement of international crude oil price significantly influences the Indian stock price. Research limitations/implications – To get a more robust result the study can be further extended by taking a longer time period with data of shorter time-frequency such as daily or weekly and further by using more sophisticated econometric and statistical tools. Further, the study can be extended to firm-level investigation considering the forward trading concentration with the Indian oil basket. Social implications – In today’s globalized era, forecasting of share price movement helps investors in predicting the market and invest accordingly. Through this liquidity of the markets enhance and markets become more active in the global arena. Originality/value – This study represents fresh findings in the changing time period the linkage between crude oil prices and stock prices which are of value to the academicians, researchers, policymakers, investors, market regulators, etc.https://www.emerald.com/insight/content/doi/10.1108/XJM-07-2020-0018/full/pdf?title=dynamics-of-oil-price-shocks-and-emerging-stock-market-volatility-a-generalized-var-approachcrude oil pricestock market volatilitybse energy indicesvar approachc32e44g17 |
| spellingShingle | Megha Agarwalla Tarak Nath Sahu Shib Sankar Jana Dynamics of oil price shocks and emerging stock market volatility: a generalized VAR approach Vilakshan (XIMB Journal of Management) crude oil price stock market volatility bse energy indices var approach c32 e44 g17 |
| title | Dynamics of oil price shocks and emerging stock market volatility: a generalized VAR approach |
| title_full | Dynamics of oil price shocks and emerging stock market volatility: a generalized VAR approach |
| title_fullStr | Dynamics of oil price shocks and emerging stock market volatility: a generalized VAR approach |
| title_full_unstemmed | Dynamics of oil price shocks and emerging stock market volatility: a generalized VAR approach |
| title_short | Dynamics of oil price shocks and emerging stock market volatility: a generalized VAR approach |
| title_sort | dynamics of oil price shocks and emerging stock market volatility a generalized var approach |
| topic | crude oil price stock market volatility bse energy indices var approach c32 e44 g17 |
| url | https://www.emerald.com/insight/content/doi/10.1108/XJM-07-2020-0018/full/pdf?title=dynamics-of-oil-price-shocks-and-emerging-stock-market-volatility-a-generalized-var-approach |
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