The Effect of Financial and Macroeconomic Factors on the Oil Market

Abstract

Our objective in this paper is to contribute to the discussion and identify, in the short-run, the effects of basic financial indicators (Equity, Bonds, Exchange Rates, Baltic Exchange Dry Index) and widely traded commodities (Gold, Wheat) on the crude oil market. A GARCH model is employed to test the above hypothesis for the period of almost ten years using daily data from June 1st, 2004 to May 30th, 2014. The results coming out of our investigation suggest that wheat and bonds markets have negative impact to the oil market. Also, the results indicate that the volatility of U.S. $/Yen exchange rate and the volatility of Baltic Exchange Dry Index influence significantly negatively the oil market. Lastly, our findings indicate that both, gold market as well as stock market, positively influence the oil market, confirming the relevant literature which was reviewed and summarized.

Keywords

• GJR-GARCH model, Crude oil WTI, Gold, Equity market, Exchange rates, Bonds market, Commodities, Baltic Exchange Index.