Association between Crude Price and Stock Indices: Empirical Evidence from Bombay Stock Exchange

Abstract

This study examines the short-term and long-term relationships between BSE 500, BSE 200 and BSE 100 Index of Bombay Stock Exchange and crude price by using various econometric techniques. The surge in crude oil prices during recent years has generated a lot of interest in the relationship between oil price and equity markets. The study covers the period between 02.04.2001 and 31.03.2011 and was performed with data consisting of 2496 days. The empirical results show there was a co-integrated long-term relationship between three index and crude price. Granger causality results reveal that there was one way causality relationship from all index of the stock market to crude price, but crude price was not the causal of each of the three indexes.

Keywords: Stock price, Crude price, Co-integration, Causality, BSE