The effects of global oil prices on local stock market indexes of emerging markets: A cross-country analysis

The study investigated the effect of global oil prices on local stock market indexes of emerging markets for both oil exporting and oil importing countries. Data covering the period from January 2010 to March 2021 for 15 emerging countries was used. Two objectives guided the study. First, the impact of global oil prices on local stock markets was assessed. Secondly, the relationship between stock price and changes in macroeconomic variables was investigated. A panel regression model was carried out to analyze the data. The findings show that global oil price is negatively related to stock market index in oil importing countries. On the other hand, the findings revealed that global oil price is positively related to stock market index in oil exporting countries. The findings also reveal that interest rate, consumer price index, exchange rate and industrial production index impact stock markets in emerging economies for both oil exporting and importing countries. Stock market price index moves in opposite direction to interest rate and exchange rate in both oil exporting and oil importing emerging economies. Stock market price index moves in the same direction as industrial production index and consumer price index. The results have policy implications. As the results in this paper have shown, stock markets in emerging economies not only respond to changes in oil price but also to changes in economic fundamentals like interest rate, inflation rate, exchange rate and economic growth. Stock market indexes are often seen as leading economic indicators. Unforeseen shocks in global oil prices may disturb expectations related to economic growth in emerging economies. Therefore, central banks should use required monetary policy tools to offset the consequences of oil price shocks.