Exploring the nexus between oil price shocks and sectoral stock returns: a new evidence from stock exchange in Malaysia

Abstract

This paper uses monthly data from 2000:05 to 2016:11 to investigate the relationship between oil price shocks and stock market returns of the nine economic sectors listed on Bursa Malaysia while incorporating oil price, interest rate, exchange rate, industrial production, and inflation into the regression. In order to avoid issue arising from the presence of the structural breaks, Narayan and Popp (J Appl Stat 37(9):1425–1438, 2010) unit root and autoregressive distributed lag (ARDL) with structural breaks were utilized. The ARDL bounds test results illustrate that all the sectors are cointegrated except trading/services and plantation sectors. The results further show that oil price has a significant negative impact on the property, mining, and technology sectors stock market returns.

This is a preview of subscription content, access via your institution.

References

  1. Al-hajj E, Al-mulali U, Solarin S (2017) The influence of oil price shocks on stock. Int J Energy Econ Policy 7:235–244

    Google Scholar 

  2. Al-mulali U, Che Sab C (2013) The impact of oil shocks on Qatar’s China’s GDP: a time series analysis. OPEC Energy Rev 37(1):20–29

    Article  Google Scholar 

  3. Arouri ME, Nguyen DK (2010) Oil prices, stock markets and portfolio investment: evidence from sector analysis in Europe over the last decade. Energy Policy 38(8):4528–4539

    Article  Google Scholar 

  4. Bai J, Perron P (2003) Computation and analysis of multiple structural change models. J Appl Econm 18(1):1–22

    Article  Google Scholar 

  5. Bhat SA, Nain MZ, Kamaiah B (2014) Linear and nonlinear causal nexus between oil price changes and stock returns in India: an empirical assessment. IUP J Appl Econ 13(3):27–44

    Google Scholar 

  6. Bjornland H (2009) Oil price shocks and stock market booms in an oil exporting country. Scott J Polit Econ 56(2):232–254

    Article  Google Scholar 

  7. Boyer M, Filion D (2007) Common and fundamental factors in stock returns of Canadian oil and gas companies. Energy Econ 29(3):428–453

    Article  Google Scholar 

  8. Broadstock D, Filis G (2014) Oil price shocks and stock market returns: new evidence from the United States and China. J Int Financ Markets Inst Money 33:417–433

    Article  Google Scholar 

  9. Broadstock D, Cao H, Zhang D (2012) Oil shocks and their impact on energy related stocks in China. Energy Econ 34(6):1888–1895

    Article  Google Scholar 

  10. Caporale G, Menla Ali F, Spagnolo N (2015) Oil price uncertainty and sectoral stock returns in China: a time-varying approach. China Econ Rev 34:311–321

    Article  Google Scholar 

  11. Çiftçi S (2014) The influence of macroeconomic variables on stock performance. Master Thesis Business Administration, University of Twente

  12. Ciner C (2001) Energy shocks and financial markets: nonlinear linkages. Stud Nonlinear Dyn Econom 5(3):203–212

    Article  Google Scholar 

  13. Cong R, Wei Y, Jiao J, Fan Y (2008) Relationships between oil price shocks and stock market: an empirical analysis from China. Energy Policy 36(9):3544–3553

    Article  Google Scholar 

  14. Daferighe E, Samuel C (2012) The impact of inflation on stock market performance in Nigeria. Am J Soc Manag Sci 3(2):76–82

    Google Scholar 

  15. Dhaoui A, Khraief N (2014) Empirical linkage between oil price and stock market returns and volatility: evidence from international developed markets. Economics Discussion Papers, No 2014-12, Kiel Institute for The World Economy

  16. El-Sharif I, Brown D, Burton B, Nixon B, Russell A (2005) Evidence on the nature and extent of the relationship between oil prices and equity values in the UK. Energy Econ 27(6):819–830

    Article  Google Scholar 

  17. Elyasiani E, Mansur I, Odusami B (2011) Oil price shocks and industry stock returns. Energy Econ 33(5):966–974

    Article  Google Scholar 

  18. Faff R, Brailsford T (1999) Oil price risk and the Australian stock market. J Energy Financ Dev 4(1):69–87

    Article  Google Scholar 

  19. Fama E (1981) Stock returns, real activity, inflation, and money. Am Econ Rev 71(4):545–565

    Google Scholar 

  20. Fisher I (1930) The theory of interest. Macmillan, New York

    Google Scholar 

  21. Granger CJ et al (2000) A bivariate causality between stock prices and exchange rate: evidence from recent Asian flu. Q Rev Econ Financ 40:337–354

    Article  Google Scholar 

  22. Hamilton JD (2009) Causes and consequences of the oil shock of 2007-08. Brook Papers Econ Act Econ Stud Progr Brook Inst 40(1): 215–283

    Article  Google Scholar 

  23. Henriques I, Sadorsky P (2008) Oil prices and the stock prices of alternative energy companies. Energy Econ 30(3):998–1010

    Article  Google Scholar 

  24. Hoang D (2015) The effects of macroeconomic variables on Asian stock market volatility: a GARCH MIDAS approach (Master Thesis in Finance). Lund University school of Economics and Finance

  25. Ibrahim TM, Agbaje OM (2013) Relationship between stock return and inflation in Nigeria. Eur Sci J 9(4):1857–7881

    Google Scholar 

  26. Janor H, Abdul-Rahman A, Housseinidoust E, Rahim R (2013) Oil price fluctuations and firm performance in an emerging market: assessing volatility and asymmetric effect. J Econ Bus Manag 1(4):385–390

    Article  Google Scholar 

  27. Jones C, Kaul G (1996) Oil and the stock markets. J Financ 51(2):463–491

    Article  Google Scholar 

  28. Kremers JJM, Ericsson NR, Dolado JJ (1992) The power of cointegration tests’. Oxf Bull Econ Stat 54:325–348

    Article  Google Scholar 

  29. Lee J, List J, Strazicich M (2006) Non-renewable resource prices: deterministic or stochastic trends? J Environ Econ Manag 51(3):354–370

    Article  Google Scholar 

  30. Liu J, Wu S, Zidek JV (1997) On segmented multivariate regression. Stat Sin 7(2):497–525

    Google Scholar 

  31. Marashdeh H, Afandi A (2018) Oil price shocks and stock market returns in the three largest oil-producing countries. Int J Energy Econ Policy 7(5):312–322

    Google Scholar 

  32. Market returns: fresh evidence from Malaysia. Int J Energy Econ Policy 7(5):235–244

  33. Maysami C, Howe L, Hamzah A (2004) Relationship between macroeconomic variables and stock market indices: cointegration evidence from stock exchange of Singapore‟s All-S sector indices. J Pengur 24(2004):47–77

    Google Scholar 

  34. MIDF Research (2017) Rebound in crude oil price and impact to the Malaysian economy. Midf.com.my. http://www.midf.com.my/images/Downloads/Research/EqStrategy/Others/Strategy-Rebound-in-Crude-Oil-Price-and-Impact-to-the-Malaysian-Economy-MIDF-271117.pdf Accessed 12 Mar 2018

  35. Nandha M, Faff R (2008) Does oil move equity prices? A global view. Energy Econ 30(3):986–997

    Article  Google Scholar 

  36. Narayan P, Popp S (2010) A new unit root test with two structural breaks in level and slope at unknown time. J Appl Stat 37(9):1425–1438

    Article  Google Scholar 

  37. Papapetrou E (2001) Oil price shocks, stock market, economic activity and employment in Greece. Energy Econ 23(5):511–532

    Article  Google Scholar 

  38. Pesaran M, Shin Y, Smith R (2001) Bounds testing approaches to the analysis of level relationships. J Appl Econom 16(3):289–326

    Article  Google Scholar 

  39. Pyeman J, Ahmad I (2017) An empirical analysis of sectoral indices movement in Malaysian stock market. J Bus Retail Manag Res 11(4):52–59

    Article  Google Scholar 

  40. Sadorsky P (1999) Oil price shocks and stock market activity. Energy Econ 21(5):449–469

    Article  Google Scholar 

  41. Sadorsky P (2001) Risk factors in stock returns of Canadian oil and gas companies. Energy Econ 23(1):17–28

    Article  Google Scholar 

  42. Sadorsky P (2006) Oil price risk and emerging stock markets. Global Financ J 17(2):224–251

    Article  Google Scholar 

  43. Scholtens B, Yurtsever C (2012) Oil price shocks and European industries. Energy Econ 34(4):1187–1195

    Article  Google Scholar 

  44. Securities Commission (SC) Annual Report (2018) https://www.sc.com.my/api/documentms/download.ashx?id=69b9ad2a-13c7-40bf-b0d3-341951a62278 Accessed 3 Feb 2020

  45. Seong LM (2013) Reactions of exchange rates towards malaysia stock market: goods market approach and portfolio balanced approach. Interdiscip J Contemp Res Bus 5(8):113–120

    Google Scholar 

  46. Shaari M, Abdul Rahim H, Tan L (2013) Effects of oil price shocks on the economic sectors in Malaysia. Int J Energy Econ Policy 3(4):360–366

    Google Scholar 

  47. Syahira S (2009) Oil price shock and malaysian sectoral stock market return (Degree of Master of Business Administration). University of Malaya

  48. Thang F (2009) Impact of interest rate and exchange rate on the stock market index in Malaysia: a cointegration analysis (Master of Business Administration). Universiti Sains Malaysia

  49. Van Mourik S, Hadberg Olsen A (2017) Oil price shocks and stock market returns in a net oil exporting economy: an empirical analysis of Norway. Master of Science in Business, Major in Business Economics Analysis (Master thesis). University College of Southeast Norway

Download references

Acknowledgements

The authors gratefully acknowledge Multimedia University for the financial support. Moreover, we would like to thank the editor and the anonymous reviewers for their valuable comments.

Author information

Affiliations

Authors

Corresponding author

Correspondence to Ekhlas Al-hajj.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Al-hajj, E., Al-Mulali, U. & Solarin, S.A. Exploring the nexus between oil price shocks and sectoral stock returns: a new evidence from stock exchange in Malaysia. Econ Change Restruct 54, 199–217 (2021). https://doi.org/10.1007/s10644-020-09271-y

Download citation

Keywords

  • Oil price shocks
  • Stock market returns
  • Malaysian sectors
  • Narayan and Popp (2010)
  • ARDL model