The Causal Relationship between Oil Prices and Sector Indices: An Analysis from Turkey

Year 2020, Volume: 4 Issue: 2, 245 - 259, 31.05.2020

Meryem Filiz Baştürk

https://doi.org/10.29023/alanyaakademik.664959

Abstract

Since oil is one of the basic inputs in economies, changes in oil prices are important to countries, particularly oil importing countries. In this regard, this paper analyzes the causal relationship between oil prices and sector indices (BIST-Industrial, BIST-Service, BIST-Financial, and BIST-Technology) in the aftermath of the 2008 financial crisis in Turkey. First, the Johansen cointegration test is employed to analyze whether there are long-run relations between oil prices and sector indices over the period from 2008-10-2018:10. Then, the long-run relationships between oil prices and the sector indices was investigated using the Granger causality test based on the Vector Error Correction Model (VECM), and the Standard Granger test is used to analyze the causality between the variables without a long-run relationship. According to the results, there are long-run bidirectional relations between oil prices and the BIST-Industrial, the BIST-Service, and the BIST-Technology sector indices, respectively. -In the short-run period, however, there is a unidirectional relation running from oil prices to the BIST-Technology sector index. There is neither a short-run or long-run relation between oil prices and the BIST-Financial sector index.

Keywords

Oil Prices, Sector Indices, Cointegration, VECM, Causality

The Causal Relationship between Oil Prices and Sector Indices: An Analysis from Turkey

Abstract

ESince oil is one of the basic inputs in economies, changes in oil prices are important to countries, particularly oil importing countries. In this regard, this paper analyzes the causal relationship between oil prices and sector indices (BIST-Industrial, BIST-Service, BIST-Financial, and BIST-Technology) in the aftermath of the 2008 financial crisis in Turkey. First, the Johansen cointegration test is employed to analyze whether there are long-run relations between oil prices and sector indices over the period from 2008-10-2018:10. Then, the long-run relationships between oil prices and the sector indices was investigated using the Granger causality test based on the Vector Error Correction Model (VECM), and the Standard Granger test is used to analyze the causality between the variables without a long-run relationship. According to the results, there are long-run bidirectional relations between oil prices and the BIST-Industrial, the BIST-Service, and the BIST-Technology sector indices, respectively. -In the short-run period, however, there is a unidirectional relation running from oil prices to the BIST-Technology sector index. There is neither a short-run or long-run relation between oil prices and the BIST-Financial sector index.

Keywords

oil prices, sector indices, cointegration, VECM, Causality

References

• Abidoğlu, Z., & Değirmenci, N. (2014). Petrol Fi̇yatlari-Hi̇sse Senedi̇ Fi̇yatlari İli̇şki̇si̇: BIST Sektörel Anali̇z. Kafkas Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 5(8), 1–24.
• Arouri, M. (2011). Does Crude Oil Move Stock Markets in Europe? A Sector Investigation. Economic Modelling, 28(4), 1716–1725.
• Arouri, M., & Rault, C. (2010). Oil Prices and Stock Markets: What Drives What in the Gulf Corporation Council Countries? CESifo Working Paper, 2934, CESifo Group Munich.
• Arouri, M., Jouini, J., & Nguyen, D. K. (2013). On the Relationship between World Oil Prices and GCC Stock Markets. hal-00798037, Available at: https://hal.archives-ouvertes.fr/hal-00798037 Accesed 5 June 2018.
• Basher, S. A., Haug, A. A., & Sadorsky, P. (2012). Oil Prices, Exchange Rates and Emerging Stock Markets. Energy Economics, 34(1), 227–240.
• Baher, S. A., & Sadorsky, P. (2006). Oil Price Risk and Emerging Stock Markets. Global Finance Journal, 17(2), 224–251.
• Belloumi, M. (2009). Energy Consumption and GDP in Tunisia: Cointegration and Causality Analysis. Energy Policy, 37(7), 2745–2753.
• Büberkökü, Ö. (2017). Çoklu Yapısal Kırılmalar Altında Petrol Fiyatlarının Türk Hisse Senedi Piyasaları Üzerindeki Etkisinin İncelenmesi. Bankacılık ve Sermaye Piyasası Araştırmaları Dergisi, 1(2), 15–32.
• Cong, R. G., Wei, Y. M., Jiao, J. L., & Fan, Y. (2008). Relationships between Oil Price Shocks and Stock Market: An Empirical Analysis from China. Energy Policy, 36(9), 3544–3553.
• Cunado, J., & Perez de Gracia, F. (2014). Oil Price Shocks and Stock Market Returns: Evidence for some European Countries. Energy Economics, 42, 365–377.
• Dagher, L., & El Hariri, S. (2013). The Impact of Global Oil Price Shocks on the Lebanese Stock Market. Energy, 63, 366–374.
• Dickey, D. A., & Fuller, W. A. (1981). Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root. Econometrica, 49(4), 1057–1072.
• Ekşi, I. H., Sentürk, M., & Yıldırım, H. S. (2012). Sensitivity of Stock Market Indices to Oil Prices: Evidence from Manufacturing sub-sectors in Turkey. Panoeconomicus, 59(4), 463–474.
• Engle, R. F., & Granger, C. W. J. (1987). Co-Integration and Error Correction: Representation, Estimation, and Testing. Econometrica, 55(2), 251–276.
• Eyüboğlu, K., & Eyüboğlu, S. (2016). Doğal Gaz v e Petrol Fiyatları ile BIST Sanayi Sektörü Endeksleri Arasındaki İlişkinin İncelenmesi. Journal of Yasar University, 11(42), 150–162.
• Granger, C. W. J. (1969). Investigating Causal Relations by Econometric Models and Cross-Spectral Methods. Econometrica, 37(3), 424–438.
• Güler, S., & Temel, Nalın, H. (2013). Petrol Fiyatlarının IMKB Endeksleri Üzerindeki Etkisi. Ekonomik ve Sosyal Araştırmalar Dergisi, 9(2), 79–97.
• Hamilton, J. D. (1983). Oil and the Macroeconomy since World War II. Journal of Political Economy, 91(2), 228-248.
• Işcan, E. (2010). Petrol Fiyatının Hisse Senedi Piyasası Üzerindeki Etkisi. Maliye Dergisi, 158, 607–617.
• Johansen, S. (1988). Statistical Analysis of Cointegration Vectors. Journal of Economic Dynamics and Control, 12(2-3), 231–254.
• Johansen, S. and Juselius, K. (1990). Maximum Likelihood Estimation and Inference on Cointegration - with Applications to the Demand for Money. Oxford Bulletin of Economics and Statistics, 52(2), 169–210.
• Kapusuzoğlu, A. (2011). Relationships between Oil Price and Stock Market: An Empirical Analysis from Istanbul Stock Exchange (ISE). International Journal of Economics and Finance, 3(6), 99–106.
• Kılıç, C., Bayar, Y., & Ozcan, B. (2014). Petrol Fiyatlarının Borsa İstanbul Sanayi Fiyat Endeksi Üzerindeki Etkisi. Kamu-İş, 13(3), 125–141.
• Lee, B. J., Yang, C. W., & Huang, B. N. (2012). Oil Price Movements and Stock Markets Revisited: A Case of Sector Stock Price Indexes in the G-7 Countries. Energy Economics, 34(5), 1284-1300.
• Li, S. F., Zhu, H. M., & Yu, K. (2012). Oil Prices and Stock Market in China: A Sector Analysis using Panel Cointegration with Multiple Breaks. Energy Economics, 34(6), 1951–1958.
• Masih, A. M. M., & Masih, R. (1996). Energy Consumption, Real Income and Temporal Causality: Results from a Multi-Country Study based on Cointegration and Error-Correction Modelling Techniques. Energy Economics, 18(3), 165–183.
• Masih, A. M. M., & Masih, R. (1997). On the Temporal Causal Relationship between Energy Consumption, Real Income, and Prices: Some New Evidence from Asian-Energy Dependent NICs Based on a Multivariate Cointegration/Vector Error-Correction Approach. Journal of Policy Modeling, 19(4), 417–440.
• Odhiambo, N. M. (2008). Financial Depth, Savings and Economic Growth in Kenya: A Dynamic Causal Linkage. Economic Modelling, 25(4), pp. 704–713.
• Odhiambo, N. M. (2009). Electricity Consumption and Economic Growth in South Africa: A Trivariate Causality Test. Energy Economics, 31(5), 635–640.
• Park, J., & Ratti, R. A. (2008). Oil Price Shocks and Stock Markets in the U.S. and 13 European Countries. Energy Economics, 30(5), 2587–2608.
• Phillips, P., & Perron, P. (1988). Testing for a Unit Root in Time Series Regression. Biometrika, 75(2), 335–346.
• Sadorsky, P. (1999). Oil Price Shocks and Stock Market Activity. Energy Economics, 21(5), 449–469.
• Sahin, S. (2015). Crude Oil and Stock Market Prices: Evidence from an Emerging Market. Çukurova Üniversitesi Sosyal Bilimler Enstitüsü Dergisi, 24(1), 61–70.
• Unlü, U. & Topcu, M. (2012). Do Oil Prices Directly Affect Stock Markets: Evidence from Istanbul Stock Exchange. İktisat, İşletme ve Finans, 27(319), 75–88.