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

Omar Masood, Manuela Tvaronavičienė and Kiran Javaria
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Omar Masood: University of Lahore
Manuela Tvaronavičienė: Vilnius Gediminas Technical University
Kiran Javaria: University of Lahore

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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.. 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 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene and nep-fmk
Date: 2019-06-30
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-02163013
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Published in Insights into Regional Development, 2019, 1 (2), pp.129-137. ⟨10.9770/ird.2019.1.2(4)⟩

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