Oil Price Fluctuation and Stock Market Performance - The Case of Pakistan

Abstract

The level of development in any country is very much dependent upon the rate of investment in the economy. Stock market provides an effective platform for the diversion of funds from surplus to deficient units and their ultimate productive investment. The prevalence of optimistic and pessimistic approach in the stock market determines the rise and fall in the stock index. There are number of local and global macroeconomic variables that determine the stock market performance. In this study the objective of the researcher is to investigate the impact of international oil price fluctuation on the performance of stock markets in Pakistan and KSE-100 Index is taken as sample for analysis. In addition to oil price, other macroeconomic variables i.e. exchange rate and foreign private portfolio investment were also included in the model to strengthen its explanatory power. The study also analyzed the significance of political stability in the determination of stock market performance. The results revealed that the oil prices, exchange rate and foreign private portfolio investment have positive correlation with stock market performance while democratic set up is found to have a negative impact over stock market performance in Pakistan.