Dependence between oil price changes and sectoral stock returns in Pakistan: Evidence from a quantile regression approach. Issue 2 (March 2022)

• Record Type: Journal Article
• Authors: Khan, Mushtaq Hussain; Ahmed, Junaid; Mughal, Mazhar
• Is Part Of: Energy & environment. Volume 33:Issue 2(2022)
• Page Start: 315
• Page End: 331
• Publication Date: 2022-03
• Subjects: Crude oil -- stock returns -- quantile regression approach -- structural breaks -- Pakistan; Power resources -- Environmental aspects -- Periodicals; Power resources -- Periodicals; Renewable energy sources -- Periodicals; Energy policy -- Environmental aspects -- Periodicals; Ressources énergétiques; Politique énergétique; Energy policy -- Environmental aspects; Power resources; Power resources -- Environmental aspects; Renewable energy sources; Periodicals; 333.7
• DOI: 10.1177/0958305X21997987
• Languages: English
• ISSNs: 0958-305X

Abstract

This study explores the dependence between changes in world crude oil prices and the performance of the Pakistan Stock Exchange, at the aggregate as well as sectoral levels for the period from July 1997 to December 2016. Quantile regression approach is employed for a detailed examination of the structure and degree of dependence for three sub-periods corresponding to normal, rising, and falling oil price periods. We found that the dependence between changes in crude oil price and the sectoral stock returns is heterogeneous across industries and it exists in both bullish and bearish market trends. The dependence at the upper and lower quantiles is found to be a common feature across industries. Moreover, the dependence and direction of the relationship change at times of structural breaks. The findings highlight an external channel through which fluctuations in stock returns may impede the liquidity of the stock market of an oil-importing country such as Pakistan, thereby affecting the domestic economy.