An Empirical Study on the Dynamic Relationship between Oil Prices and Indian Stock Market

Manegerial Finance; Emerld; Vol. 40(2); 200-215;

16 Pages Posted: 25 Aug 2014 Last revised: 21 Jun 2017

Date Written: 2014

Abstract

Purpose

– This study aims to investigate the dynamic relationships between oil price shocks and Indian stock market.

Design/methodology/approach

– The study used daily data for the period starting from January 2001 to March 2013. In this study, Johansen's cointegration test, vector error correction model (VECM), Granger causality test, impulse response functions (IRFs) and variance decompositions (VDCs) test have been applied to exhibit the long-run and short-run relationship between them.

Findings

– The cointegration result indicates the existence of long-term relationship. Further, the error correction term of VECM shows a long-run causality moves from Indian stock market to oil price but not the vice versa. The results of the Granger causality test under the VECM framework confirm that no short-run causality between the variables exists. The VDCs analysis revealed that the Indian stock markets and crude oil prices are strongly exogenous. Finally, from the IRFs, analysis revealed that a positive shock in oil price has a small but persistence and growing positive impact on Indian stock markets in short run.

Originality/value

– The study would enhance the understandings of the interaction between oil price volatilities and emerging stock market performances. Further, the study would enable foreign investors who are interested in Indian stock market helps in understanding the conditional relationship between the variables.

Keywords: Cointegration, Stock market, Granger causality test, Crude oil price

JEL Classification: C32, E31, E44, G14

Suggested Citation

Sahu, Tarak Nath and Bandopadhyay, Kalpataru and Mondal, Debasish, An Empirical Study on the Dynamic Relationship between Oil Prices and Indian Stock Market (2014). Manegerial Finance; Emerld; Vol. 40(2); 200-215; . Available at SSRN: https://ssrn.com/abstract=2486189

Tarak Nath Sahu (Contact Author)

Vidyasagar University ( email )

Vidyasagar University
Midnapur, West Bengal 721102
India
+91-9474971927 (Phone)

HOME PAGE: http://vidyasagar.ac.in/Faculty/Profile/Print?fac_u_id=Fac-COM-56

Kalpataru Bandopadhyay

Vidyasagar University ( email )

Vidyasagar University
Midnapur, West Bengal 713101
India

Debasish Mondal

Independent ( email )

No Address Available
United States

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