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The Effect of Oil Price on Stock Market Returns with Moderating Effect of Foreign Direct Investment & Foreign Portfolio Investment: Evidence from Pakistan Stock Market

Muhammad Usman and Danish Siddiqui ()
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Muhammad Usman: Reasearch Scholar, Karachi University Business School, University of Karachi, Pakistan

Asian Journal of Economic Modelling, 2019, vol. 7, issue 2, 45-61

Abstract: This paper investigates the moderating impact of FDI & FPI in the association of macro-economic variables along with Oil prices & Index returns. Monthly data has been used from the period 2005 to 2018. Efficient unit root & breakpoint unit root tests results indicate that all variables are stationary at 1st difference. Co-integration test results signify the presence of long-run relationship in model. GARCH (1,1) model has been applied for analyzing the volatility in the data series. Furthermore, least square method is employed to check dependency & fitness level of model. In order to investigate the moderating impact, regression technique has been applied. Findings of LSM technique indicate that index returns aren?t significantly dependent on macro-economic variables on 1st difference of data series because variables predicting behavior has been changed with respect to stationarity of data. Exchange rate & interest rate have negative significant association with index returns. Oil prices & foreign direct investment have positive relationship with stock market return. FDI & FPI are unable to moderate significantly model dynamics. For estimating the panel regression model, 11 different sectors data is used and results show that exchange rate & oil prices have positive significant impact on sector wise price change but interest rate has significant negative association.

Keywords: Exchange Rate; Interest rate; Foreign direct & portfolio; investment; Stock market return; Oil Prices; Co-integration; Stationarity; GARCH (1; 1). (search for similar items in EconPapers)
JEL-codes: C51 E44 G11 (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:asi:ajemod:2019:p:45-61