OIL PRICES AND EQUITY MARKET DYNAMICS: A SECTORAL ANALYSIS OF THE TEXTILE INDUSTRY IN PAKISTAN

Abstract

This research study investigates how fluctuations in oil prices influence the stock returns within Pakistan’s textile sector. The analysis relies on secondary data from 40 composite textile firms listed on the Pakistan Stock Exchange (PSX), selected based on the consistent availability of their stock price data from 2004 to 2016. Stock price statistics were collected from the PSX, crude oil prices were obtained through Bloomberg, while exchange rate and interest rate data were gathered from the International Financial Statistics (IFS) database maintained by the International Monetary Fund (IMF). The study applies various econometric techniques, particularly assessing both the Fixed Effects Model (FEM) and the Random Effects Model (REM). To identify the more appropriate model, the Hausman test was conducted. Findings suggest that the exchange rate exerts a significant and positive effect on stock returns, whereas both oil prices and interest rates negatively affect them. The evidence indicates that an increase in oil prices tends to reduce stock returns in Pakistan’s textile industry.

Keywords: Oil Prices, Stock Return, Exchange Rate, Interest Rate.