Open AccessThe Conundrum of Oil Prices, Stock Returns and Exchange Rate
Author(s) -
Asad ul Islam Khan,
Abdul Qadir Shah,
Zia ur Rehman,
Muhammad Ibrahim Khan
Publication year - 2021
Publication title -
journal of business and tourism
Language(s) - English
Resource type - Journals
eISSN - 2521-0548
pISSN - 2520-0739
DOI - 10.34260/jbt.v3i2.68
Subject(s) - cointegration , economics , econometrics , error correction model , oil price , stock (firearms) , exchange rate , johansen test , vector autoregression , granger causality , impulse response , monetary economics , mathematics , mechanical engineering , engineering , mathematical analysis
This study imperially investigated the impact of oil prices and exchange rate on stock returns over the period of demand driven oil shock from 2001 to 2008 and supply driven oil shock from 2009 to 2016. To further explore the variation due to frequency of data, the study used daily, weekly and monthly data. The data was analyzed by applying Johansen Cointegration test, Vector error correction model, Granger causality test and Impulse response function. The Johansen Cointegration and vector error correction models confirm the long run relationship between oil prices and stock returns in all six samples. In short run, oil prices and exchange rate are not associated with the changes in stock returns. However, during demand driven oil price shocks, results confirm bidirectional relationship between oil prices and stock return.