The impact of oil prices on stock market development in Pakistan: Evidence with a novel dynamic simulated ARDL approach

Muhammad Imran Khan, Jian-Zhou Teng, Muhammad Kamran Khan, Arshad Ullah Jadoon and Muhammad Fayaz Khan

Resources Policy, 2021, vol. 70, issue C

Abstract: Both developed and developing economies of the world are greatly influenced by global oil prices. More importantly, after the repeated episodes of economic crises in different parts of the world at difference times, like world crisis 2008, European debt crisis 2011 and COVID-19 pandemic, the investors are keen to know the potential effect of fluctuating oil prices generally on the global financial markets with particular emphasis on the stock market returns. This paper empirically explores the impact of oil prices and macro-economic factors on stock market development in Pakistan by utilizing a novel dynamic autoregressive distributed lag simulations model for annual time series data starting from 1985 to 2017. The results of dynamic simulated ARDL model disclose that oil prices, remittance inflow and foreign direct investment exert a positive effect while exchange rate exert a negative effect on the development of the Pakistan stock market. This study suggests that the government, policy makers and the investors should estimate probable changes in oil prices, exchange rate, expected inflow of personal remittances and FDI in order to easily forecast the performance of stock exchange in Pakistan.

Keywords: Oil prices; Stock market development; Exchange rate; Remittances; FDI; Dynamic ARDL simulations Model (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:70:y:2021:i:c:s0301420720309302

DOI: 10.1016/j.resourpol.2020.101899

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