Oil prices and stock markets play vital functions to a country�s economic condition. Thus,\nthis study examines the dynamic relationship between the inflation adjusted Philippine Stock\nExchange index (PSEi) prices and real oil prices in Philippine peso using monthly data from\nJanuary 1996 to December 2014 applying the Vector Autoregression (VAR) Model. Granger\nCausality Test, Impulse Response Functions (IRFs) and Forecast Error Variance\nDecomposition (FEVD) were also used to aid in the analyses of the results. The results of this\nstudy suggest that there is no significant relationship between the monthly inflation adjusted\nstock prices of the PSEi and monthly real oil prices in peso. This paper offers guidance to the\ninvestors that the real oil prices do not significantly Granger-cause the movement of the\nmonthly prices of the PSEi. It is suggested that the dynamic relationship between oil prices,\nindustrial production and share prices of sector indices in the Philippines that are highly\noil-dependent be investigated in future research considering the oil demand and supply\nshocks.
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