The Relationship Between Oil Prices, Exchange Rates And Emerging Stock Market Prices

1151 Words May 1st, 2016 5 Pages
Over the past decade, there have been numerous periods of high volatility in oil prices. In July 2014 oil was priced on the North Sea Brent at over $111/barrel, followed by the most recent oil price crash which lowered the Brent in early 2016 to under $30/barrel.

There is a growing body of evidence to suggest that the days of oil commodity prices being driven purely by forces of supply and demand are over.

Figure 0

Since the early 2000s, the sharp increase in oil price volatility has coincided with a more apparent link between exchange rates and other assets. The 2008 Financial Crisis demonstrated how interwoven the global economy has become. This does not only apply to equity markets. As Figure 0 shows above, the crash coincided with a period of high volatility in oil price as well.

This growing trend demonstrates the need for a deeper understanding of the relationship between oil prices, exchange rates and emerging stock market prices. This is especially the case because as emerging mega-economies such as China and India continue to grow, they will exert a larger influence over the global economy (Basher et al, 2012).

This paper seeks to examine the relationship between oil prices, exchange rates and stock prices of these two countries through a financial market perspective. The gravity and intensity of which contains invaluable information for investors, corporations, policy makers and governments.

1.1 India and China

While much of the literature previously…
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