Modelling Market Indices, Commodity Market Prices and Stock Prices of Energy Sector using VAR with Variance Decomposition Model

Bharat Kumar Meher, Iqbal Thonse Hawaldar, Santosh Kumar and Abhishek Kumar Gupta
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Bharat Kumar Meher: Darshan Sah College, Katihar (Under Purnea University), Bihar, India,
Iqbal Thonse Hawaldar: College of Business Administration, Kingdom University, Bahrain
Santosh Kumar: Darshan Sah College, Katihar (Under Purnea University), Bihar, India,
Abhishek Kumar Gupta: Darshan Sah College, Katihar (Under Purnea University), Bihar, India,

International Journal of Energy Economics and Policy, 2022, vol. 12, issue 4, 122-130

Abstract: The study aims to examine the existence of a correlation between the stock prices of the energy sector, commodities prices of the energy sector, and market indices. The study uses an empirical approach to develop various VAR (Vector Autoregression) with Variance Decomposition Models for each company under the energy sector indexed in NIFTY50 by considering daily prices for 3 years. For a comparative study, the data have been divided into two parts. The first part is considered pre-COVID era, i.e., from July 1, 2018, to December 31, 2019, and the second part is considered post-COVID era, i.e., from January 1, 2020, to June 30, 2021. While observing the estimates of VAR of different companies, it can be said that crude oil is significant in most of the models during pre-COVID whereas, during post COVID, lag term of crude oil and NIFTYENGERGY are significant. On the other hand, while observing the estimates of variance decomposition in all the VAR models, the first lag term of the particular company's share price is strongly endogenous. In comparison, the other independent variable, i.e., lag term of the price of crude oil and natural gas, values of NIFTY50 and NIFTY ENERGY are strongly exogenous to the stock prices of the energy sector.

Keywords: Vector Autoregression; VAR with Variance Decomposition; Market Index; NIFTY50; Nifty Energy; Commodity Market; COVID (search for similar items in EconPapers)
JEL-codes: C32 C53 C58 G1 G17 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eco:journ2:2022-04-16

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