LINKAGES BETWEEN CRUDE OIL FUTURES AND SELECTED SECTORAL INDICES: EVIDENCE FROM CAUSALITY APPROACH

Ammar Ali; Dr. Mohd Asif Khan

doi:10.36690/2674-5208-2022-3-43

Authors

Ammar Ali Aligarh Muslim University
Dr. Mohd Asif Khan Aligarh Muslim University

DOI:

https://doi.org/10.36690/2674-5208-2022-3-43

Keywords:

Crude Oil Futures, Sector Index, Granger Causality, Vector Autoregression, VECM

Abstract

The aim of this study is to empirically show the dynamic causal relationship between crude oil future prices and sectoral indices of India using daily data from November 30^th, 2011 to November 18^th, 2021 and its subsets. First, we apply ADF, P-P and KPSS unit root tests and then Johansen tests for estimating the cointegration. We use Granger Causality to find linkages and further VAR and VECM as per cointegration. VAR results are supported by Impulse Response whereas Wald tests ascertain the shortterm relationship for insignificant coefficients. The study found that crude oil futures and sectoral indices are integrated of order one in subset 2 whereas subset 1 and full data period doesn’t show cointegration. The overall result for the full data period shows the metal sector and crude oil futures have bidirectional causality with significant impact on the metal sector. The Metal Index also has symmetric results on different time horizons. Subdata 2 shows long term relations between crude oil futures and all the sectors except FMCG and Health. Subdata 1 shows the lag of crude oil futures influences the metal sector only in the short term. The study is conducted for a period of ten years and based in India, which is an oil importing country. The availability of commodity derivatives data is also limited in India, hence the study cannot be generalized for all the countries. No study has been done considering crude oil futures and sectoral indices of India, hence providing the gap for the study.

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Author Biographies

Ammar Ali, Aligarh Muslim University

Department of Commerce, Aligarh Muslim University, Aligarh, Uttar Praedesh 202002, India

Dr. Mohd Asif Khan, Aligarh Muslim University

Associate Professor, Department of Commerce, Aligarh Muslim University, Aligarh, Uttar Praedesh 202002, India

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