Does Oil Price Matter for the Malaysian Stock Market?
Keywords:Oil price, Stock market, FBMKLCI, FBMEMAS, ARDL
Uncertainty in the crude oil price has motivated researchers to analyze the relationship between oil prices and economic activities. In recent years, the literature has changed focus of the relationship to asset prices such as stock and gold prices. This paper investigates the effect of oil prices on Malaysian stock prices. We use monthly data for the period 2007-2016 and utilize the Auto Regressive Distributed Lag (ARDL) cointegration approach to estimate the short-run and long-run relationship between crude oil price and two different indices; namely FBMKLCI and FBMEMAS. We find that crude oil prices are cointegrated with both indices and the relationship is negative and significant in the long-run. This is consistent with theoretical expectations and existing empirical studies.
Al-hajj, E., U. Al-Mulali, and S.A Solarin. “Oil Price Shocks and Stock Returns Nexus for Malaysia: Fresh Evidence from Nonlinear ARDL Test.” Energy Report 4 (2018): 624–37.
Anoruo, E., and M. Mustafa. “An Empirical Investigation into Relation of Oil to Stock Market Price.” North American Journal of Finance and Banking Research 1, no. 1 (2007): 22-36.
Arouri, M.E.H., M. Bellalah, and D.K. Nguyen. “Further Evidence on the Responses of Stock Prices in GCC Countries to Oil Price Shocks.” International Journal of Business 16, no. 1 (2011): 89-102.
________, and J. Fouquau. “On the Short-Term Influence of Oil Price Changes on Stock Markets in GCC Countries: Linear and Nonlinear Analyses.” Economics Bulletin 29, no.2 (2009): 795-804.
Bjørnland, H.C. “Oil Price Shocks and Stock Market Booms in an Oil Exporting Country.” Scottish Journal of Political Economy 56, no. 2 (2009): 232-54.
Ciner, C. “Energy Shocks and Financial Markets: Nonlinear Linkages.” Studies in Nonlinear Dynamics and Econometrics 5, no. 3 (2001): 1-11.
Central Intelligence Agency US. The World Factbook, 2016. https://www.cia.gov/library/publications/the-world-factbook/rankorder/2253rank.html
Coronado, S., R.J. Rodriguez, and O., Rojas. “An Empirical Analysis of the Relationships between Crude Oil, Gold and Stock Markets.” The Energy Journal 39, Special Issue 1 (2018):193-208.
Cunado, J., and F. Perez de Gracia. “Oil Price Shocks and Stock Market Returns: Evidence for Some European Countries.” Energy Economics 42 (2014): 365-77.
Constantinos, K., L.A. Ektor, and M. Dimitrios. “Oil Price and Stock Market Linkages in a Small and Oil Dependent Economy: The Case of Greece.” Journal of Applied Business Research 26, no. 4 (2010): 55-64.
El-Sharif, I., D. Brown, B. Burton, B. Nixon, and A. Russell. “Evidence on the Nature and Extent of the Relationship between Oil Prices and Equity Values in the UK.” Energy Economics 27, no. 6 (2005): 819-30.
FTSE Russeli Ground Rules: Index Calculation, 2016. http://www.ftse.com/products/downloads/FTSE_Bursa_ Malaysia_Index_Series.pdf?89
Gogineni, S. “The Stock Market Reaction to Oil Price Changes.” Working Paper, University of Oklahoma, 2008.
Herzer, D., and P. Nunnenkamp. “The Effect of Foreign Aid On Income Inequality: Evidence from Panel Cointegration.” Structural Change and Economic Dynamics 23, no. 3 (2012): 245-55.
Hussin, M.Y.M., F. Muhammad, M.F. Abu Hussin, and A. Abdul Razak. “The Relationship between Oil Price, Exchange Rate and Islamic Stock Market in Malaysia.” Research Journal of Finance and Accounting 3, no. 5 (2012): 83-92.
Jones, D.W., P.N. Leiby, and I.K. Paik. “Oil Price Shocks and the Macroeconomy: What Has Been Learned Since 1996.” The Energy Journal 25, no. 2 (2004): 1–32.
Kilian, L., and C. Park. “The Impact of Oil Price Shocks on the U.S. Stock Market.” International Economic Review 50, no. 4 (2009): 1267-87.
Lin, C., C. Fang, and H. Cheng. “Relationships between Oil Price Shocks and Stock Market: An Empirical Analysis from Greater China.” China Economic Journal 3, no. 3 (2010): 241-54.
Miller, J.I., and R.A. Ratti. “Crude Oil and Stock Markets: Stability, Instability, and Bubbles.” Energy Economics 31, no. 4 (2009): 559-68.
Najaf, R. “Impact of International Oil Prices on the Stock Exchange of Malaysia and Turkey.” Journal of Accounting and Marketing 5, no. 4 (2016): 1-4.
Nandha, M., and R. Faff. “Does Oil Move Equity Prices? A Global View.” Energy Economics 30, no. 3 (2008): 986–97.
Narayan P.K., and R. Gupta. “Has Oil Price Predicted Stock Returns for Over a Century?” Energy Economics 48 (2015): 18-23.
_______, and S. Narayan. “Modeling The Impact of Oil Prices on Vietnam’s Stock Prices.” Applied Energy 87, no. 1 (2010): 356-61.
O’Neill, T.J., J. Penm, and R.D. Terrell. “The Role of Higher Oil Prices: A Case of Major Developed Countries.” Research in Finance 24 (2008): 287-99.
Park J., and R.A. Ratti. “Oil Price Shocks and Stock Markets in the U.S. and 13 European Countries.” Energy Economics 30, no. 5 (2008): 2587-608.
Pesaran,M.H., Y. Shin and R.J. Smith. “Bounds Testing Approaches to the Analysis of Level Relationships.” Journal of Applied Econometrics. 16 (2001): 289-326.
Yurtsever, C. and T. Zahor. “Oil Price Shocks and Stock Market in the Netherlands.” Working Paper Series. University of Groningen, 2007.