Finance and Credit

Oil market pricing and the impact on stock market

Vol. 24, Iss. 1, JANUARY 2018

Received: 22 November 2017

Received in revised form: 6 December 2017

Accepted: 20 December 2017

Available online: 29 January 2018

Subject Heading: Securities market

JEL Classification: E37, E44, E47, F20, G15

Pages: 178–188

Mikhailov A.Yu. Financial University under Government of Russian Federation, Moscow, Russian Federation

Burova T.F. Financial Research Institute of Ministry of Finance of Russian Federation, Moscow, Russian Federation

ORCID id: not available

Importance The article studies the main features of pricing in the oil market, as well as the influence of oil prices on the stock indices of countries.
Objectives The paper aims to analyze the major trends in the oil market and develop a model to predict the impact of oil prices on stock market indices.
Methods This work uses the probit-model with the real prices for Brent crude oil, a three-month interest rate in the money market, consumer price index, and the GDP growth rate, as binary dependent variables.
Results The article reveals tendencies of pricing at different stages of oil market development and shows the influence of oil prices on stock indices, both developed countries and Russia. Also, it offers a forecast of oil prices between 2017–2019.
Conclusions The practical significance of this work is the structuring of existing knowledge about the applicability of probit-models in the conditions of the Russian economy. Based on the forecast of supply and demand in the oil market in the nearest three years, the paper says oil prices will not be subject to growth. The effect of oil prices on stock markets is asymmetrical, in general, except for the Russian and Canadian stock markets, where correlation coefficients are positive. This is because Russia and Canada have a prevailing share of crude oil and hydrocarbons in net exports.

Keywords: oil pricing, price forecasting, stock market returns, probit-regression


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