Received: 2019-03-15  |  Accepted: 2019-06-08  |  Published: 2019-06-30

Title

Impact of oil prices on stock return: evidence from G7 countries


Abstract

The aim of the study is to investigate the impact of oil prices on the stock market of G7 countries. Oil prices not only affect the economy of a country but also the country's stock market. The stock market affects the stock valuation or, to put in another way, the company's stock value. The stock value is associated with the discounted sum of predictable future cash flows and these flows may be distressed by macroeconomic variables including oil prices fluctuations. This study has researched the impact of oil prices' fluctuation on countries included G7, i.e. Canada, Germany, France, Italy, United Kingdom, United States of America and Japan. The time periods were from September 2009 to August 2016. For the analysis, the most recent data is collected. In this study, the real stock return has considered as a depended variable or predict variable, while oil prices, industrial production, and short-term interest rate are as independent, or predictor variables. The study is quantitative in nature. All data was collected from OECD website with the exception of oil prices, which were taken from oil intelligence report. The model, which has been used in the study is based on Arbitrage pricing theory-APT model, where financial assets are associated with macroeconomic variables. The results showed that Industrial production is positively associated with a real stock return in the case of Germany, Italy, Japan, the United Kingdom, and France, while the short-term interest rate is negatively connected with a real stock return in the case of Canada, the United Kingdom, and United States of America. Oil prices have an insignificant effect on real stock markets of all considered countries. The authors provide an economic interpretation of the obtained results.


Keywords

oil prices, industrial production, short-term interest rate, real stock return, G7 countries, Arbitrage Pricing Theory (APT)


JEL classifications

E31 , G12


URI

http://jssidoi.org/ird/article/10


DOI


HAL


Pages

129-137


Funding

This research was supported by Vilnius Gediminas Technical University, Department of Entrepreneurshi and Business Technologies

This is an open access issue and all published articles are licensed under a
Creative Commons Attribution 4.0 International License

Authors

Masood, Omar
University of Lahore, Lahore, Pakistan https://www.uol.edu.pk
Articles by this author in: CrossRef |  Google Scholar

Tvaronavičienė, Manuela
Vilnius Gediminas Technical University, Vilnius, Lithuania https://vilniustech.lt
Articles by this author in: CrossRef |  Google Scholar

Javaria, Kiran
University of Lahore, Lahore, Pakistan https://www.uol.edu.pk
Articles by this author in: CrossRef |  Google Scholar

Journal title

Insights into Regional Development

Volume

1


Number

2


Issue date

June 2019


Issue DOI


ISSN

ISSN 2345-0282 (online)


Publisher

VšĮ Entrepreneurship and Sustainability Center, Vilnius, Lithuania

Cited

Google Scholar

Article views & downloads

HTML views: 3325  |  PDF downloads: 1359

References


Arouri, M., Fouquau, J. (2009). On the short-term influence of oil price changes on stock markets in GCC countries: linear and nonlinear analyses, Economics Bulletin, 29(2): 795-804. https://econpapers.repec.org/article/eblecbull/eb-09-00163.htm

Search via ReFindit


Bernanke, B. S. (1983). Irreversibility, Uncertainty, and Cyclical Investment. Quarterly Journal of Economics 98: 85-106.

Search via ReFindit


Corden, W. M., Neary, J. P. (1982). Booming sector and de-industrialisation in a small open economy. The Economic Journal, 92(368): 825–848. https://doi.org/10.2307/2232670

Search via ReFindit


Hamilton, J. D. (2005). Oil and the Macroeconomy. Forthcoming in Durlauf, S., Blume, L. (Eds), The New Palgrave Dictionary of Economics, 2nd ed., Palgrave MacMillan Ltd.

Search via ReFindit


Hamilton, J. D. (2011). Nonlinearities And The Macroeconomic Effects Of Oil Prices, Macroeconomic Dynamics, Cambridge University Press, 15(S3): 364-378, November.

Search via ReFindit


Huang, R. D., Masulis, R. W., Stoll, H. R. (1996). Energy shocks and financial markets. Journal of Futures Markets 16, 1-27.

Search via ReFindit


Humbatova, S., Garayev, A., Tanriverdiev, S., Hajiyev, N. (2019). Analysis of the oil, price and currency factor of economic growth in Azerbaijan, Entrepreneurship and Sustainability Issues 6(3): 1335-1353. https://doi.org/10.9770/jesi.2019.6.3(20)

Search via ReFindit


Jones, C. M., Kaul, G. (1996). Oil and the Stock Market. Journal of Finance 51: 463-491.

Search via ReFindit


Melas, V., Lisin, E., Tvaronavičienė, M., Peresadko, G., Radwański, R. 2017. Energy security and economic development: renewables and the integration of energy systems, Journal of Security and Sustainability Issues 7(1): 133-139. https://doi.org/10.9770/jssi.2017.7.1(11)

Search via ReFindit


Norman, S. (1988). The International Economy under Stress. Cambridge, Mass.: Ballinger Publishing Co.

Search via ReFindit


Papapetrou, E. (2001). Oil price shocks, stock market, economic activity and employment in Greec. Energy Economics, 511-532. https://doi.org/10.1016/S0140-9883(01)00078-0

Search via ReFindit


Park, J.; Ratti, R.A. (2008). Oil price shocks and stock markets in the US and 13 European countries. Energy Economics, 2587-2608. https://doi.org/10.1016/j.eneco.2008.04.003

Search via ReFindit


Ross, S.A. (1976). The Arbitrage Theory of Capital Asset Pricing, Journal of Economic Theory, 13: 341-360. https://www.top1000funds.com/wp-content/uploads/2014/05/The-Arbitrage-Theory-of-Capital-Asset-Pricing.pdf

Search via ReFindit


Sadorsky, P. (2001). Risk factors in stock returns of Canadian oil and gas companies, Energy Economics, 23(1): 17-28. https://doi.org/10.1016/S0140-9883(00)00072-4

Search via ReFindit


Tatom, John A. (1988). Are the Macroeconomic Effects of Oil Price Changes Symmetric? Carnegie–Rochester Conference Series on Public Policy 28: 325–68.

Search via ReFindit


Tvaronavičienė, M., Nesterova, K., Kováčik, V. (2017). Energy security and long-term energy efficiency: the case of selected counties, Journal of Security and Sustainability Issues 7(2): 349-357. https://doi.org/10.9770/jssi.2017.7.2(14)

Search via ReFindit


Tverberg, G. (2010). Crude Oil Price, Commodity Prices & Crude Oil Analysis at Oil Price http://oilprice.com/Energy

Search via ReFindit


Van Wijnbergen, Sweden, 1986. On fiscal deficits, the real exchange rate and the world rate of interest, European Economic Review, 30(5), 1013-1023 https://ideas.repec.org/a/eee/eecrev/v30y1986i5p1013-1023.html

Search via ReFindit