Price Volatility in Crude Oil and its Impact on Indian Stock Market

Abstract

This paper investigates whether the equity returns of the Indian equity market are sensitive to the fluctuations occurring in the global crude oil volatility index (OVX), a forward-looking measure of oil market uncertainty published by the Chicago Board Options Exchange (CBOE). The equity market data are analyzed by categorizing them into Large Cap, Mid Cap and Small Cap equity data, in order to test whether firm size has any impact on the relation between the OXV index and the equity market of India. This paper utilizes the GARCH-jump model and demonstrates that the OVX has a substantial impact on the Indian equity returns. In addition, time variant jumps are found to be present in the Indian equity market returns. The findings also reveal that firm size does have an impact, with the Large cap equity returns being affected the largest by the OVX index. Additional tests performed also confirm that the crisis period does have a significant impact on the relation studied and lastly there exists asymmetric impacts of OVX on the equity return indices of the Indian stock market.