Does Indian Stock Market Provide Diversification Benefits Against Oil Price Shocks? A Sectoral Analysis
This paper investigates the time-varying relationship between the oil price and disaggregated stock market of India using DCC-MGARCH and Continuous Wavelet Transformation methodologies. Our findings reveal the evolving relationship between the oil price and disaggregated stock market. The correlations are generally volatile before the 2007-08 crisis but since then the correlations are positive implying no diversification benefits for the investors during rising oil prices. Since, emerging markets in general, and India in particular, is expected to increase its share of oil consumption in the world’s energy market (due to rapid expansion), therefore for the stock market to grow, especially the oil-intensive industries, we recommend the government should increase its reliance on alternative energy resources such as coal and renewables. Furthermore, as rising oil prices can also have its adverse effect through exchange rate channel, we suggest the monetary policies should be time varying to manage the oil inflationary pressures arising out of extreme volatility in the oil prices.
|Date of creation:||24 Aug 2014|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Li, Su-Fang & Zhu, Hui-Ming & Yu, Keming, 2012. "Oil prices and stock market in China: A sector analysis using panel cointegration with multiple breaks," Energy Economics, Elsevier, vol. 34(6), pages 1951-1958.
- Thai-Ha LE & Youngho CHANG, 2011.
"The Impact of Oil Price Fluctuations on Stock Markets in Developed and Emerging Economies,"
Economic Growth Centre Working Paper Series
1103, Nanyang Technological University, School of Social Sciences, Economic Growth Centre.
- Thai-Ha Le & Youngho Chang, 2011. "The impact of oil price fluctuations on stock markets in developed and emerging economies," Working Papers 23, Development and Policies Research Center (DEPOCEN), Vietnam.
- Le, Thai-Ha & Chang, Youngho, 2011. "The impact of oil price fluctuations on stock markets in developed and emerging economies," MPRA Paper 31753, University Library of Munich, Germany.
- Boyer, M. Martin & Filion, Didier, 2007. "Common and fundamental factors in stock returns of Canadian oil and gas companies," Energy Economics, Elsevier, vol. 29(3), pages 428-453, May.
- M. Martin Boyer & Didier Filion, 2004. "Common and Fundamental Factors in Stock Returns of Canadian Oil and Gas Companies," CIRANO Working Papers 2004s-62, CIRANO.
- Park, Jungwook & Ratti, Ronald A., 2008. "Oil price shocks and stock markets in the U.S. and 13 European countries," Energy Economics, Elsevier, vol. 30(5), pages 2587-2608, September.
- Ramos, Sofia B. & Veiga, Helena, 2013. "Oil price asymmetric effects: Answering the puzzle in international stock markets," Energy Economics, Elsevier, vol. 38(C), pages 136-145.
- Akoum, Ibrahim & Graham, Michael & Kivihaho, Jarno & Nikkinen, Jussi & Omran, Mohammed, 2012. "Co-movement of oil and stock prices in the GCC region: A wavelet analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(4), pages 385-394.
- El-Sharif, Idris & Brown, Dick & Burton, Bruce & Nixon, Bill & Russell, Alex, 2005. "Evidence on the nature and extent of the relationship between oil prices and equity values in the UK," Energy Economics, Elsevier, vol. 27(6), pages 819-830, November.
- Hedi Arouri, Mohamed El & Khuong Nguyen, Duc, 2010. "Oil prices, stock markets and portfolio investment: Evidence from sector analysis in Europe over the last decade," Energy Policy, Elsevier, vol. 38(8), pages 4528-4539, August.
- Mohamed El Hedi Arouri & Duc Khuong Nguyen, 2010. "Oil Prices, Stock Markets and Portfolio Investment: Evidence from Sector Analysis in Europe over the Last Decade," Working Papers hal-00507823, HAL.
- Campbell, John Y, 1991. "A Variance Decomposition for Stock Returns," Economic Journal, Royal Economic Society, vol. 101(405), pages 157-179, March.
- John Y. Campbell, 1990. "A Variance Decomposition for Stock Returns," NBER Working Papers 3246, National Bureau of Economic Research, Inc.
- Campbell, John, 1991. "A Variance Decomposition for Stock Returns," Scholarly Articles 3207695, Harvard University Department of Economics.
- Basher, Syed A. & Sadorsky, Perry, 2006. "Oil price risk and emerging stock markets," Global Finance Journal, Elsevier, vol. 17(2), pages 224-251, December.
- Syed A. Basher & Perry Sadorsky, 2004. "Oil price risk and emerging stock markets," International Finance 0410003, EconWPA.
- Lorenzo Cappiello & Robert F. Engle & Kevin Sheppard, 2006. "Asymmetric Dynamics in the Correlations of Global Equity and Bond Returns," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 4(4), pages 537-572.
- Cappiello, Lorenzo & Engle, Robert F. & Sheppard, Kevin, 2003. "Asymmetric dynamics in the correlations of global equity and bond returns," Working Paper Series 204, European Central Bank.
- Tom Doan, "undated". "RATS program to estimate various forms of DCC GARCH models," Statistical Software Components RTZ00174, Boston College Department of Economics.
- Narayan, Paresh Kumar & Narayan, Seema, 2010. "Modelling the impact of oil prices on Vietnam's stock prices," Applied Energy, Elsevier, vol. 87(1), pages 356-361, January.
- Hilde C. Bjørnland, 2009. "Oil Price Shocks And Stock Market Booms In An Oil Exporting Country," Scottish Journal of Political Economy, Scottish Economic Society, vol. 56(2), pages 232-254, May.
- Hilde C. Bjørnland, 2008. "Oil Price Shocks and Stock Market Booms in an Oil Exporting Country," Working Paper 2008/16, Norges Bank.
- Lutz Kilian & Cheolbeom Park, 2009. "The Impact Of Oil Price Shocks On The U.S. Stock Market," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(4), pages 1267-1287, November.
- Kilian, Lutz & Park, Cheolbeom, 2007. "The Impact of Oil Price Shocks on the U.S. Stock Market," CEPR Discussion Papers 6166, C.E.P.R. Discussion Papers.
- Gisser, Micha & Goodwin, Thomas H, 1986. "Crude Oil and the Macroeconomy: Tests of Some Popular Notions: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(1), pages 95-103, February.
- Engle, Robert F & Sheppard, Kevin K, 2001. "Theoretical and Empirical Properties of Dynamic Conditional Correlation Multivariate GARCH," University of California at San Diego, Economics Working Paper Series qt5s2218dp, Department of Economics, UC San Diego.
- Robert F. Engle & Kevin Sheppard, 2001. "Theoretical and Empirical properties of Dynamic Conditional Correlation Multivariate GARCH," NBER Working Papers 8554, National Bureau of Economic Research, Inc.
- Sadorsky, Perry, 1999. "Oil price shocks and stock market activity," Energy Economics, Elsevier, vol. 21(5), pages 449-469, October.
- Jones, Charles M & Kaul, Gautam, 1996. " Oil and the Stock Markets," Journal of Finance, American Finance Association, vol. 51(2), pages 463-491, June.
- Henriques, Irene & Sadorsky, Perry, 2008. "Oil prices and the stock prices of alternative energy companies," Energy Economics, Elsevier, vol. 30(3), pages 998-1010, May.
- Elyasiani, Elyas & Mansur, Iqbal & Odusami, Babatunde, 2011. "Oil price shocks and industry stock returns," Energy Economics, Elsevier, vol. 33(5), pages 966-974, September.
- Maghyereh, A., 2004. "Oil Price Shocks and Emerging Stock Markets: A Generalized VAR Approach," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 1(2), pages 27-40.
- Cong, Rong-Gang & Wei, Yi-Ming & Jiao, Jian-Lin & Fan, Ying, 2008. "Relationships between oil price shocks and stock market: An empirical analysis from China," Energy Policy, Elsevier, vol. 36(9), pages 3544-3553, September.
- Cheung, Yin-Wong & Ng, Lilian K., 1998. "International evidence on the stock market and aggregate economic activity," Journal of Empirical Finance, Elsevier, vol. 5(3), pages 281-296, September.
- Ghosh, Sajal, 2011. "Examining crude oil price - Exchange rate nexus for India during the period of extreme oil price volatility," Applied Energy, Elsevier, vol. 88(5), pages 1886-1889, May.
- Burbidge, John & Harrison, Alan, 1984. "Testing for the Effects of Oil-Price Rises Using Vector Autoregressions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(2), pages 459-484, June.
- John Burbidge & Alan Harrison, 1982. "Testing for the Effects of Oil-Price Rises Using Vector Autoregressions," School of Economics Working Papers 1982-01, University of Adelaide, School of Economics.
- Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-248, April.
- Rebeca Jimenez-Rodriguez & Marcelo Sanchez, 2005. "Oil price shocks and real GDP growth: empirical evidence for some OECD countries," Applied Economics, Taylor & Francis Journals, vol. 37(2), pages 201-228.
- Jiménez-Rodríguez, Rebeca & Sánchez, Marcelo, 2004. "Oil price shocks and real GDP growth: empirical evidence for some OECD countries," Working Paper Series 362, European Central Bank.
- Nandha, Mohan & Faff, Robert, 2008. "Does oil move equity prices? A global view," Energy Economics, Elsevier, vol. 30(3), pages 986-997, May. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:58828. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.