Nexus Between Oil and Stock Prices: A Case of Pakistan Stock Exchange (PSX)

Abstract

The objective of this research is to examine the association between oil prices and stock return in the emerging market of Pakistan using an advanced econometric analysis named wavelet approach. This approach was chosen due to its ability to study complex, non-linear interactions throughout time. In particular, the wavelet-based technique helps you examine the short and long-term implications of oil price fluctuations on stocks. This research found that oil prices play a crucial role in explaining Pakistan's stock market return. This research uses historical data from July 10, 2020, to July 10, 2024, to demonstrate how outside events like a pandemic might impact the share price movement of the Pakistan Stock Exchange (PSX). This study helps readers comprehend how oil prices impact the Pakistani stock market. This information may help investors in the stock market to make sensible choices, especially in an uncertain environment. These insights can also help policymakers create plans to make the economy more robust to external shocks.