Crude Oil Price Shocks and Industrial Returns in Pakistan: An  Examination through GARCH Based Dynamic Models

Hassan Javed; Uzma Bashir; Shoaib Hassan

doi:10.33897/fujbe.v8i1.706

Hassan Javed Lecturer, National University of Modern Languages (NUML) Rawalpindi, Pakistan
Uzma Bashir Assistant Professor, National University of Modern Languages (NUML) Rawalpindi, Pakista
Shoaib Hassan Head of Department, National University of Modern Languages (NUML) Rawalpindi, Pakistan

DOI: https://doi.org/10.33897/fujbe.v8i1.706

Keywords: Mean & Volatility Spillover, Crude Oil, Industrial Returns, Time-varying Conditional Correlation & DCC-GARCH models.

Abstract

This paper attempts to examine the link between crude oil prices and industrial returns in
Pakistan using daily data for the period of June-2008 to Jan-2021. Mean and volatility
spillover is examined by using ARMA (1,1) GARCH (1,1)-M model. In addition, the timevarying nature of conditional correlation is determined by using DCC-GARCH models.
Further, study has also investigated the impact of Covid-19 on the relationship between COP
and INDR. Findings of the study provide strong evidence of volatility spillover from crude oil
prices to Automobile Assemblers, Oil & Gas, Power Generation & Distribution and Refinery
but only scarce evidence is found regarding mean spillover. DCC-GARCH model reveals the
time-varying nature of conditional correlation between crude oil prices and all other
industries. Moreover, the results also provide some evidence about asymmetric behavior in
correlation among crude oil prices to Cement and Refinery.