Long Run and Short Run Co-movement among Oil Prices and Stock Market Liquidity: Evidence from the Emerging Equity Market of Pakistan

Sania Sarfraz, Mumtaz Ahmad and Muhammad Husnain

Sustainable Business and Society in Emerging Economies, 2021, vol. 3, issue 3, 231-241

Abstract: Abstract: The objective of this study is to examine the long run and short run relationship between oil prices and stock market liquidity in Pakistan stock exchange.Design/Methodology/Approach: The sample spans 10 years from 2010 to 2019. We use auto-regressive distributed lag (ARDL) to examine long-term and short-term relationships between oil prices, exchange rate, stock market index, market volatility and inflation and stock market liquidity. We use normality checks, serial correlation tests, heteroscedasticity tests, and CUSM models to assess model stability.Findings: Result shows that there exist a long-term negative association between exchange rate and inflation, but a positive relationship is revealed between oil prices, stock returns, and market volatility. These conclusions hold for three sectors i.e. automobile, cement and sugar.Implications/Originality/Value: This study extends the existing debate on the relationship between macroeconomic variables and stock market liquidity to the emerging equity market. For this, it uses three proxies for stock market liquidity: Amihud liquidity, average trading volume, and trading volume average.

Keywords: Volatility; Exchange Rate; Liquidity; Stock Market; Oil Prices (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:src:sbseec:v:3:y:2021:i:3:p:231-241

DOI: 10.26710/sbsee.v3i3.1913

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