Oil Prices And Stock Markets

Discuss about the Oil Prices and Stock Markets.

 

 

Background

Oil prices and stock market are both identified as leading economic indicators. Contextually, it has been observed that oil prices have negative relation with the price increase and economic growth. Economic growth is considerably associated with trading. In stock market, public listed companies are able to trade in a systematic manner. According to the past scenarios, rises of oil prices have coincided with equity market, higher inflation, government bond yield and economic recessions. Based on the fluctuation of oil prices and instable economic condition, it can be highlighted that the movements of oil price and stock market both have a minimal correlation (Ready, 2016).

Aim

The aim of the research focuses on highlighting the potential effects of frequent changes in petroleum price over the past years along with corporate cash flows and earnings, which consequently have an impact on stock price.

Objectives

• To investigate the impact of volatility spillovers
•  To discuss the bidirectional impacts on petroleum prices and stock sector indices
• To analyze the potential impacts of petroleum price on economy and stock price in North America, Western Europe and OPEC

Literature Review

Oil Price is one of the most prominent driving forces of world economy. In the last few decades, the energy dependency of the entire world has significantly changed. According to the changing scenario, the world has witnessed a stable growth with respect to energy resources, especially in petroleum. Considering the present market scenarios, it can be evaluated that petroleum along with different products are in high demand for the different varied world governments along with the stock markets (Husain, Arezki, Breuer, Haksar, Helbling, Medas…, & Sommer, 2015; Ramos & Veiga, 2014). Petroleum prices have been more volatile as compared to the other commodities. Difiglio (2014), analyzed 40 years of data related with oil price stocks and economic growth, thus revealed that weak economic growth is almost preceded by oil price stock. It is also observed that price-inelastic demand and supply of oil price shocks and reduction of economic growth are related with each other (Difiglio, 2014).

In the context of relatedness of different factors of stock market, economies and oil price, Xiong & Han (2015) presented that there is a potential “linkage between exchange rates and stock return series in terms of the conditional secondary moments of relevant distributions, which is also known as volatility spillovers” (p. 8). It is a significant factor in stock market and economy stability, which was critically portrayed from the research findings of Natarajan, Singh & Priya (2014). Natarajan et al. (2014), depicted that the volatility spillovers can identify two different angles for stock market operations and economies. It can be used to emphasize casual relationship within the current volatility and previous volatility shocks of a specific market. On the other hand, cross volatility spillovers indicates a one way relationship between current volatility of a market and past volatility of the other market (Natarajan et al., 2014).

According to the past scenarios, it has been observed that the oil prices declined in the year 2014, which can be explained by the increase of oil supply. The factors have notably portrayed that lower price of oil has weaker worldwide demand. Supply of petroleum oil can be affected due to investment and technological innovations, which facilitate the extractions of crude oil. Weaker global growth may be recognized as a main driver for the downfall in the oil prices (ECB Economic Bulletin, 2016). ECB Economic Bulletin (2016), also presented an approach of movements relating to the petroleum price, in the context of stock market volatility. The petroleum prices are allied with different channels, which may generate impacts on the return of stock markets. The fluctuation of petroleum price and the sudden shocks of stock prices may attract the attention of several associates including policy makers, investors, finance researchers and practitioners across the entire world. The major economic rationale has the potential effects of the frequent changes in corporate cash flows, earnings, stock prices. Moreover, Imarhiagbe (2010), stated that the long term relationship within ‘oil price-macroeconomic’ and ‘oil price-stock price’. Past evidences have significantly highlighted the correlation between oil price and the economic output, which directly influence the stock market operations. Correspondingly, the basic materials including financial, industrial sectors, oil and gas products’ prices are hampered due to the fluctuation in economic output and stock shocks. Contextually, this scenario thoroughly emphasized the bidirectional impacts associated with petroleum prices as well as stock sector indices that will be critically elaborated in final section of literature review in the dissertation.

Methodology

The study will select qualitative research method for the conducting further research. Contextually, it is observed that the qualitative method is able to focus on diversified areas of inquiry as well as reveals the trends of perceptions to evaluate the solution of the core problem. Moreover, qualitative research approach provides aids to reveal the behaviors of target audiences and their perceptions towards particular issue (Qualitative Research Consultants Association, 2017; Creswell, 2014). The study will also conduct secondary data collection process, through which it will able to gather information related with oil prices, stock market and global economies. For secondary data collection, the study will consider previous researches of different scholars, industrial reports along with past records on economic growth, oil price fluctuation and stock market. Qualitative research will be most appropriate for this study due to the in-depth analysis of the process (University of Southern California, 2017). The study will consider secondary resources, which will enable in providing numerical related with oil price, world economies and stock market fluctuation along with their relationships for generating impacts on each other.

Data exclusion and inclusion procedure will follow be throughout the research process for maintaining the feasibility and reliability of the study. The research strategy will also follow the most feasible way of literature search strategy to conclude a reliable outcome at the end of the study. First the research will avail search engine such as Google, Google scholars to gather resources associated with oil price fluctuation, stock market and global economies’ influential factors and driving forces along with past records on price fluctuations. From secondary resources, the study will focus on gathering stock market trends and its impacts on global economies. The fluctuation of oil prices and its relation with stock market as well as the combined impacts on global economies will also be covered through the secondary data.

Ethical consideration is relied on the moral principles of specific conductions. The study will follow the comprehensiveness, reliability and feasibility in the overall process to maintain the accurate outcome. The study will also follow the ethical consideration norms and industrial legal approval details for achieving optimal reliability. The trustworthy resources will only utilize for maintaining the credibility, transferability and conformability of outcome. The article will utilize audit trail to record information in details, including flexible data context and describe appropriate data collection procedures as well (Houghton, Casey, Shaw & Murphy, 2013). On the other hand, the entire process will significantly follow the norms of confidentiality, thereby evading the chances of biasness.

Data Analysis

Data analysis is an important part through which further findings and results will be identified. For a compact data analysis, the study will focus on following the thematic analysis process. Thematic analysis is one of the most common and radical forms of data analysis that can use in qualitative research approach. It is able to emphasize and examine the gathered data on the basis of themes. The pattern of themes will follow all data sets and will be segregated according to the description of a specific phenomenon. In thematic analysis, the study will describe different themes and will attempt to explain the predefined themes on the basis of aforementioned research aim and objectives. In thematic analysis, the study will further gather data based on certain themes, which will be distinctly associated with oil price, stock market and their interrelationship along with its combined impacts on global economies. These scenarios will help to understand the alignment of the projected aim and will help to achieve the objectives as well.

Conclusion

The study will depict regarding the significance of oil price fluctuations and its impact on global economies along with the stock market. The scenario will be explained with the support of secondary researches from industrial reports and previous recorded data, which are related with oil prices, stock market fluctuation and economies’ dependency. Reliable data will help in portraying the highlighted issues of the study and assist in concluding significant result. Contextually, the study will also focus on evaluating the specific aim and the objectives through which further elaborations of dissertation will be conducted.

Dissertation Structure

Introduction	Initial idea regarding the research’s aim and objectives, which will help to conclude a feasible outcome of the identified issue
Literature Review	Scholarly articles, industrial reports and previous records will be segregated and discussed accordingly
Methodology	The process of research conduction will describe accordingly through appropriate data collection method, research method, analysis method and ethical consideration
Data Analysis and Discussion	Analysis of gathered data will be conducted and discussed for generating an in-depth understanding regarding the issue
Result and findings	With the support of secondary data, the study will draw a comprehensive finding, which will help to conclude results
Conclusion	The overall findings and understanding will draw in this section

Time Line

The following Gantt chart provides an idea regarding the time span of research conduction and its different segments:

Figure 1: Gantt Chart

References

Creswell, J. W. (2014). Research design: Qualitative, quantitative, and mixed methods approaches. US: SAGE.

Difiglio, C. (2014). Oil, economic growth and strategic petroleum stocks. Energy Strategy Reviews, 5, 48-58.

ECB Economic Bulletin. (2016). Global implications of low oil prices. ECB Economic Bulletin, 4, 1-4.

Houghton, C., Casey, D., Shaw, D. & Murphy, K. (2013). Rigour in qualitative case-study research. Nurse Res, 20(4), 12-17.

Husain, A. M., Arezki, R., Breuer, P., Haksar, V., Helbling, T., Medas, P. A…, & Sommer, M. (2015). Global implications of lower oil prices. US: International Monetary Fund.

Imarhiagbe, S. (2010). Impact of oil prices on stock markets: Empirical evidence from selected major oil producing and consuming countries. Global Journal of Finance and Banking Issues, 4(4), 15-24.

Natarajan, V. K., Singh, A. R. R. & Priya, N. C. (2014). Examining mean-volatility spillovers across national stock markets. Journal of Economics Finance and Administrative Science, 19(36), 55-62.

Qualitative Research Consultants Association. (2017). Why qualitative research works?. Retrieved September 15, 2017, from https://www.qrca.org/?page=whatisqualresearch

Ramos, S. & Veiga, H. (2014). The interrelationship between financial and energy markets. Germany: Springer.

Ready, R.C. (2016). Introduction. Oil Prices and the Stock Market, 2-36.

University of Southern California (2017). Organizing your social sciences research paper: Qualitative methods. USC Libraries. Retrieved September 15, 2017, from https://libguides.usc.edu/writingguide/qualitative

Xiong, Z. & Han, L. (2015). Volatility spillover effect between financial markets: Evidence since the reform of the RMB exchange rate mechanism. Financial Innovation, 1(9), 2-12.