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Linear and Nonlinear Causal Nexus Between Oil Price Changes and Stock Returns in India: An Empirical Assessment

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  • Sajad Ahmad Bhat
  • Md Zulquar Nain
  • Bandi Kamaiah

Abstract

This paper examines both the linear and nonlinear causal relationship between crude oil price changes and stock market returns in India. In particular, the study applies alternative unit root tests with and without structural break to ascertain the shifts in crude oil price changes and stock market returns for the period 1991:01 to 2013:08. The linear and nonlinear causality tests are conducted using the standard Vector Autoregression (VAR) and the Diks and Panchenko (2006) frameworks respectively. The results from the unit root tests indicate that crude oil price changes and stock market returns are stationary. The results from the standard VAR model provide evidence of unidirectional causality from stock returns to crude oil price changes. The results of the Diks-Panchenko causality test, however, support nonlinear bidirectional causality between the two variables.

Suggested Citation

  • Sajad Ahmad Bhat & Md Zulquar Nain & Bandi Kamaiah, 2014. "Linear and Nonlinear Causal Nexus Between Oil Price Changes and Stock Returns in India: An Empirical Assessment," The IUP Journal of Applied Economics, IUP Publications, vol. 0(3), pages 27-44, July.
    • Handle: RePEc:icf:icfjae:v:13:y:2014:i:3:p:27-44
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    Cited by:

    1. Ekhlas Al-hajj & Usama Al-Mulali & Sakiru Adebola Solarin, 2021. "Exploring the nexus between oil price shocks and sectoral stock returns: a new evidence from stock exchange in Malaysia," Economic Change and Restructuring, Springer, vol. 54(1), pages 199-217, February.

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