The impact of change in oil prices on the equity markets of oil exporting and importing countries.

Anotace: This research work examines the level of the integration of equity markets of both oil importer and exporter countries based on impact of change in oil price attained by using the daily stock index data and oil price. The sample comprised of three oil importer countries Pakistan, India and Bangladesh along with three oil exporter countries Saudi Arab, Oman and UAE. For the purpose of analysis, the econometric technique mean and volatility spillover (ARMA 1, 1 and GARCH in Mean) is used. This investigation continues in two steps. First, is the impact of the economic shock in the prices of oil on returns of equity markets of both oil importer and exporter countries is studied and in the next step the impact of the same shock affecting the volatility of equity market of the sample countries is measured. The mean spillover impact from the variation in the oil price is constructive for oil importer and oil exporter countries both except for India. Volatility spillover impact is negative and significant for two oil importing countries like Pakistan, Bangladesh, and two oil exporting countries e.g. Saudi Arab and UAE but positive for Oman and India, one oil importing and one oil exporting country. The negative correlation among the variation in the oil price and equity returns of Pakistan, Bangladesh, Saudi Arab and UAE indicate the presence of portfolio divergence opportunities for foreign stockholders and portfolio executives. India, the only country for which the equity returns and their volatility are not under the influence of the change in the oil rate. Finally it is concluded that prices of oil are the cause of mean and volatility spillover in the Arab countries more significant than in sub-continent countries. The practical implication, limitations as well as directions for future research are discoursed later in this research article.