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Impact of energy prices on equity markets: the analysis of different market conditions

Sharif, Arshian (2022) Impact of energy prices on equity markets: the analysis of different market conditions. Doctoral thesis, Universiti Utara Malaysia.

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Abstract

Energy prices have been considered to be an essential component in the development of any country both economically and financially. After the global financial crisis, the upsurge in prices for different kind of commodities has gained the attention of policymakers to the part of investors ' action in financial markets. These rises and fall in the prices significantly influence the relationship between energy prices and equity market prices around the globe. In connection with this, the present research aims to examine the effect of different energy prices (such as oil, heating oil, natural gas and gasoline) on the prices dynamics of the equity market in top energy-consuming countries. To attain this objective, the current research collects time-series data of the top five energy-consuming countries including the United States of America, China, India, Japan and Canada. The study used the daily time-series data from 1st January 1996 to 30th November 2020. The study applied different linear and nonlinear estimation to confirm the association between different energy prices and equity market prices. The findings of nonlinear estimation (i.e. quantile cointegration) confirmed a significant nonlinear connection between different energy prices and equity market in top energy-consuming countries. Furthermore, the findings of quantile-on-quantile regression confirmed that the effect of all energy prices are mostly positive on equity returns except the oil prices returns which affect negatively equity returns during normal market conditions. Moreover, on the extreme tails, the effect is strong and weak positive for all energy prices returns in the USA and Canada. On the other hand, China and Japan have a similar case, the energy prices show a positive and significant impact on equity returns mostly in the normal market conditions and also in bearish and bullish market conditions. In the case of India, the effect of oil, natural gas and heating oil (gasoline and energy portfolio) are negative (positive) on equity returns during normal market conditions. However, the effect of all energy prices returns are strong positive on equity returns during bearish and bullish market conditions. On the other hand, the outcomes endorse that the influence of different energy prices returns on equity price volatility are different across the quantiles and the maximum fluctuation in the relationship can be seen on extreme tails of the conditional distribution which is bearish and bullish market conditions. In the case of the USA, India and Canada, the effect of all energy prices are mostly positive on equity volatility except the energy portfolio returns which affect negatively equity volatility during normal market conditions. Moreover, on the extreme tails, the effect is strongly positive and negative for all energy prices returns. On the other hand, China and Japan have a similar case, the energy prices show a positive and significant impact on equity volatility mostly in the normal market conditions and also in bearish and bullish market conditions. The study recommends several policy implications to the investor and all for the top energy-consuming countries considering the relationship between energy prices and equity market prices.

Item Type: Thesis (Doctoral)
Supervisor : Abd Karim, Mohd Zaini
Item ID: 10969
Uncontrolled Keywords: Oil; natural gas; gasoline; equity market; energy-consuming countries; quantiles.
Subjects: H Social Sciences > HG Finance
Q Science > QA Mathematics > QA299.6-433 Analysis
Divisions: Othman Yeop Abdullah Graduate School of Business
Date Deposited: 12 Feb 2024 02:14
Last Modified: 12 Feb 2024 02:14
Department: Othman Yeop Abdullah Graduate School of Business
Name: Abd Karim, Mohd Zaini
URI: https://etd.uum.edu.my/id/eprint/10969

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