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Volatility in Crude Oil Prices and its Impact on Indian Stock Market Evidence from BSE Sensex#


Affiliations
1 MP Birla Institute of Management, Bangalore – 560001, Karnataka, India
2 REVA University, Bangalore – 560064, India
 

The recent fluctuations in the crudes prices have captured the researcher’s attention towards the crucial role that crudes prices play on the economy of any nation. The volatility in crude price has influenced the uncertainty in the price expectation in the countries economy. As majority of the empirical studies support that the crude oil price volatility significantly influences the country’s economy and also the stock returns. Therefore, understanding the movement of stock returns is an important issue from the perspective of a developing economy like India. Therefore, it is necessary to identify the variables that drives the stock prices are very important for the market participants and policy makers. The aim of this paper is to investigate the volatility of crude prices and its impact on Indian stock market. For the purpose of the study the data has been collected from Prowess data base for a period from 2006 to 2015. The collected data has been tested for stationarity by employing ADF test and the length intervals for each variable to run the AIC. Later a linear regression has been run. The volatility of the Sensex has been measured by applying GARCH (1,1) model. The linear regression results show that changes in crudes prices have an impact on Sensex. Apart from that the study concludes that the Crude prices was significant in the volatility of the Sensex and have the competency to transmit shock on Sensex. Therefore, policy makers have to take the movement of the crudes prices while framing the policies that affect the economy at large and stock market in particular. Finally, these results have been compared to the available evidence.

Keywords

Crude Oil Prices, GARCH (1, 1), Stationarity, Serial Correlation, Volatility.
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  • Volatility in Crude Oil Prices and its Impact on Indian Stock Market Evidence from BSE Sensex#

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Authors

S. Sathyanarayana
MP Birla Institute of Management, Bangalore – 560001, Karnataka, India
S. N. Harish
REVA University, Bangalore – 560064, India
Sudhindra Gargesha
MP Birla Institute of Management, Bangalore – 560001, Karnataka, India

Abstract


The recent fluctuations in the crudes prices have captured the researcher’s attention towards the crucial role that crudes prices play on the economy of any nation. The volatility in crude price has influenced the uncertainty in the price expectation in the countries economy. As majority of the empirical studies support that the crude oil price volatility significantly influences the country’s economy and also the stock returns. Therefore, understanding the movement of stock returns is an important issue from the perspective of a developing economy like India. Therefore, it is necessary to identify the variables that drives the stock prices are very important for the market participants and policy makers. The aim of this paper is to investigate the volatility of crude prices and its impact on Indian stock market. For the purpose of the study the data has been collected from Prowess data base for a period from 2006 to 2015. The collected data has been tested for stationarity by employing ADF test and the length intervals for each variable to run the AIC. Later a linear regression has been run. The volatility of the Sensex has been measured by applying GARCH (1,1) model. The linear regression results show that changes in crudes prices have an impact on Sensex. Apart from that the study concludes that the Crude prices was significant in the volatility of the Sensex and have the competency to transmit shock on Sensex. Therefore, policy makers have to take the movement of the crudes prices while framing the policies that affect the economy at large and stock market in particular. Finally, these results have been compared to the available evidence.

Keywords


Crude Oil Prices, GARCH (1, 1), Stationarity, Serial Correlation, Volatility.

References





DOI: https://doi.org/10.18311/sdmimd%2F2018%2F19997