IMPACT OF OIL PRICE FLUCTUATIONS ON STOCK RETURNS AND EXCHANGE RATE: A CASE STUDY OF BRAZIL, CHINA, MEXICO, RUSSIA, SAUDIA ARABIA, VENEZUELA

Abstract

The purpose of this research is to investigate the impact of oil price variation on stock returns and exchange rate on country’s economy. It estimates a Vector Auto-Regressive model with Impulse Response function. In addition to that ADF test and granger causality test has also been applied. The countries under consideration are Russia, China, Brazil, Mexico, Saudi Arabia, and Venezuela .These are all oil producing and exporting countries with the exception of Brazil and China who only produce oil. Independent variable under consideration is crude oil price and dependent variables are stock market returns and exchange rate. Data was collected on monthly basis and data range is from January 2001 to July 2016 with 187 total observations. It is shown that oil price variation does not make significant impact on Russia, Mexico and Venezuela‘s Stock market returns and exchange rate. Saudi Arabia is the only country among oil exporters in which oil price volatility made a significant impact on exchange rate. As for as China and Brazil are concerned impact of oil variation on both countries exchange rate is not significant but on stock market returns it is statically significant. A key limitation of this study is that, it is based on daily data base and due to this reason some of the countries are not included due to non-availability of data and absence of registered stock markets.