The Relationship Between Oil and Natural Gas Prices and Stock Price: An Empirical Research in BIST Industrial Sector

Abstract

Purpose – Determining the factors affecting stock prices is an important research subject in terms of finance. The aim of this study is to determine the relationship between oil and natural gas prices and the stock prices of companies operating in the industrial sector.

Design/methodology/approach – For the purpose of the study, the panel cointegration test was applied with crude oil, Brent oil and natural gas prices in US dollars and US dollar stock prices of 111 companies included in the Borsa Istanbul Industrials index and whose data are available continuously for the period of January 2010 and December 2019. Three separate models were designed in which stock prices are the dependent variable and crude oil, Brent oil and natural gas prices are independent variables respectively. Long and short term causality relationships were investigated with panel vector error correction model for models with cointegration.

Findings – As a result of the analysis, the cointegration relationship between oil prices and stock prices has been determined. On the other hand, a long-term relationship could not be determined between natural gas prices and stock prices. The panel vector error correction models also conclude that the increase in oil prices increases stock prices.

Discussion – In the study, it was determined that the increase in the price of oil, which is a cost element for industrial enterprises, increases the prices of stock. The fact that the increase in oil prices expresses the increase in production, the parties to whom income transfer is made due to the rising oil prices evaluate their income as investment in capital markets or the increase in the net cash inflows of the enterprises that increase their sales prices in parallel with the increase in oil prices may result in these findings.