Do Global Oil Price Changes Affect Indian Stock Market Returns?

Abstract

The present research work is conducted to analyze whether changes in oil prices at global level affect the stock market returns in Indian market. Daily closing stock market price data from National Stock Exchange (NSE) and daily oil prices, for the period beginning from January 2010 to December 2014, are taken into consideration. VAR model of co-integration is used to test the relation between the two variables. It is found that there is no long term integration between oil price and Indian stock index series. Apart from long term, these series do not even cause each other in short run. Very weak correlation, about 3.21 percent, was observed in the series that may be due to recent fall in crude oil prices at global level. Individual/ institutional investors, portfolio managers, corporate executives, policy makers and practitioners may draw meaningful conclusions from the findings of the present study while operating in stock markets. Research like this may help diverse stakeholders in management of their existing portfolios as their portfolio management strategies may be, up to some extent, dependent upon such research work.

This paper is an attempt to fill the research gap that exists for Indian stock market in terms of its relationship with global oil prices.

Keywords: NSE, Oil prices, India, Co-integration

JEL Classification: G10, G15