Examining the Impact of Changes in Natural Gas, Oil, and Currency Prices on the Return of Selected Stock Market Indices | ||
| تحقیقات مالی | ||
| Volume 27, Issue 1, 2025, Pages 58-84 PDF (556.27 K) | ||
| Document Type: Research Paper | ||
| DOI: 10.22059/frj.2024.369518.1007545 | ||
| Authors | ||
| Bakhtiar Javaheri* 1; Seyed Meysam Mousavi Fatah2; Khaled Ahmadzadeh1 | ||
| 1Associate Prof., Department of Economics, Faculty of Humanities and Social Sciences, University of Kurdistan, Sanandaj, Iran. | ||
| 2MSc., Department of Economics, Faculty of Humanities and Social Sciences, University of Kurdistan, Sanandaj, Iran. | ||
| Abstract | ||
| Objective In recent years, the increasing demand for energy has highlighted the importance of energy in production. As a strategic energy source, natural gas is a vital component of the production process for goods and services. On the other hand, financial markets are crucial to any country's economy, and stock exchanges are a key component of these markets. Various indices calculated on stock exchanges indicate the return and overall trend of stock prices in the entire market and specific industries. The fluctuation of each index is influenced by changes in the stock prices of companies included in the calculation. Many factors contribute to fluctuations in companies' stock prices, including the price of natural gas, which is used by various industries in their production processes. Changes in gas prices affect companies' profit margins, leading to changes in their stock prices. Ultimately, these changes impact the overall return of the capital market. Given the significance of this topic, this research examines the short-term and long-term effects of changes in natural gas prices on the return of the Iranian stock market. Methods This research is classified as applied research, employing quantitative methodology. To analyze the monthly data spanning from April 2009 to March 2022, this study utilized the Vector Autoregression (VAR) method and the Johansen Cointegration Test. Results The results confirm a long-term relationship between natural gas price changes and selected capital market indices. The Johansen Cointegration Test indicates that changes in gas prices have a negative impact on stock market indices, OTC, chemical industries, industry, cement, and petroleum products in both the short- and long-term. Furthermore, the results indicate that exchange rate changes have a positive and significant effect on capital market indices in both the short- and long-term. Finally, the test results show that oil price changes have a negative impact on indices in the short-term, but in the long-term, changes in indices will move in the same direction as oil price changes. Conclusion Considering the significant impact of gas prices on capital market fluctuations, it is recommended that the government regulate gas prices to minimize their negative effects on capital market indices. To achieve this, sudden decisions regarding gas prices should be avoided. Instead of making annual budget decisions, a dynamic gas pricing formula should be designed, allowing the price of gas offered to industries to fluctuate in response to global gas price changes. This would provide investors with the stable, long-term economic conditions they require. To promote diversification of energy consumption, the government can implement policies to increase investment in renewable and emerging energy sectors, encouraging companies to switch to alternative energy sources. This would reduce industries' dependence on gas and mitigate the impact of gas price changes on the stock market. Objective In recent years, the increasing demand for energy has highlighted the importance of energy in production. As a strategic energy source, natural gas is a vital component of the production process for goods and services. On the other hand, financial markets are crucial to any country's economy, and stock exchanges are a key component of these markets. Various indices calculated on stock exchanges indicate the return and overall trend of stock prices in the entire market and specific industries. The fluctuation of each index is influenced by changes in the stock prices of companies included in the calculation. Many factors contribute to fluctuations in companies' stock prices, including the price of natural gas, which is used by various industries in their production processes. Changes in gas prices affect companies' profit margins, leading to changes in their stock prices. Ultimately, these changes impact the overall return of the capital market. Given the significance of this topic, this research examines the short-term and long-term effects of changes in natural gas prices on the return of the Iranian stock market. Methods This research is classified as applied research, employing quantitative methodology. To analyze the monthly data spanning from April 2009 to March 2022, this study utilized the Vector Autoregression (VAR) method and the Johansen Cointegration Test. Results The results confirm a long-term relationship between natural gas price changes and selected capital market indices. The Johansen Cointegration Test indicates that changes in gas prices have a negative impact on stock market indices, OTC, chemical industries, industry, cement, and petroleum products in both the short- and long-term. Furthermore, the results indicate that exchange rate changes have a positive and significant effect on capital market indices in both the short- and long-term. Finally, the test results show that oil price changes have a negative impact on indices in the short-term, but in the long-term, changes in indices will move in the same direction as oil price changes. Conclusion Considering the significant impact of gas prices on capital market fluctuations, it is recommended that the government regulate gas prices to minimize their negative effects on capital market indices. To achieve this, sudden decisions regarding gas prices should be avoided. Instead of making annual budget decisions, a dynamic gas pricing formula should be designed, allowing the price of gas offered to industries to fluctuate in response to global gas price changes. This would provide investors with the stable, long-term economic conditions they require. To promote diversification of energy consumption, the government can implement policies to increase investment in renewable and emerging energy sectors, encouraging companies to switch to alternative energy sources. This would reduce industries' dependence on gas and mitigate the impact of gas price changes on the stock market. | ||
| Keywords | ||
| Capital market indices; Johansen's cointegration cest; Natural gas price; Vector Autoregression | ||
| References | ||
|
Acaravci, A., Ozturk, I. & Kandir, S. Y. (2012). Natural gas prices and stock prices: Evidence from EU-15 countries. Economic Modelling, 29(5), 1646-1654. Ahmed, W. (2017). On the interdependence of natural gas and stock markets under structural breaks. The Quarterly Review of Economics and Finance, 67, 149-161. Azarian, A., Abdoh Tabrizi, H. & Charmgar, H. (2021). A to Z of stock market. Tehran: Iran's Daneshyaran Press. (in Persian) Basher, S. A. & Sadorsky, P. (2006). Oil Price Risk and Emerging Stock Markets. Global Finance Journal, 17, 224–251. Enders, W. (2010). Applied Econometric Time Series. (Saeid Shavalpour & Mahdi Sadeghi Shahdani, Trans.). Tehran, Imam Sadiq University Press. (in Persian) Energy balance sheet of 2020 (2022). Ministry of Power, Director General of the Office of Planning and Macroeconomics in Electricity and Energy. (in Persian) Farazmand, H. & Abdolahi, N. (2013). Investigating the relationship between the price of natural gas and the stock price of companies admitted to the stock exchange: A case study of Iranian petrochemical industries. The Second National Conference of New and Clean Energies. Hamedan. (in Persian) Ghasemi, A., Mohammadi, T., Tavakolian, H. & Sadeghin, A. (2020). Dynamic Correlation between Oil Markets and Financial Markets and Oil and Petrochemical Industries in Iran. Quarterly Energy Economics Review, 65, 1-34. (in Persian) Goh, C. Y., Jeremy, J., Fuwei, T. J. & Wang, Y. (2012). Can US Economic Variables Predict Chinese Stock Market. Pacific-Basin Finance Journal, 22, 69-87. Hu, A. & Qing, D. (2015). On natural gas pricing reform in China, Natural Gas Industry B, 2, 374-382. Jiang-Bo, G., Fu-Rui, C., Qiang, J. & Bing-Yue, L. (2020). Network connectedness between natural gas markets, uncertainty and stock markets. Energy Economics, 95, 302-318. Kilian, L. (2009). Not all oil price shocks are alike: Disentangling demand and supply shocks in the crude oil market. The American economic review, 99 (3), 1053-1069. Noferesti, M. (1999). A single and collective root in econometrics. Tehran, Rasa Press. Raie, R. & Talangi, A. (2004). Advanced investment management. Tehran, Samt Press. | ||
|
Statistics Article View: 106 PDF Download: 105 |
||