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A regression analysis study on the relationship between oil price volatility and UK oil and gas companies' returns - Dissertation Example

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ABSTRACT Unlike many other studies which focused upon the relationship between oil prices and equity returns across different territories in different time frames, this study provides a more refined model as a result of the inclusion of Natural Gas prices volatility in order to comprehend the understudied area of research…
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A regression analysis study on the relationship between oil price volatility and UK oil and gas companies returns
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"A regression analysis study on the relationship between oil price volatility and UK oil and gas companies' returns"

Download file to see previous pages The findings of the regression analysis also support the evidence of oil prices volatility having no impact upon the returns generated by the oil and gas sector of UK. Strong but negative relationship between oil and gas sector returns and various other factors such as benchmark equity index i.e. FTSE100, exchange rate movements and short term interest rates are found in the study consistent with some previous other research findings as well. VARIABLE CHOICE Under previous studies of El-Sharif (2005) and Sardosky (2001), there are few variables taken into consideration to check the returns generated by oil and gas sector companies of UK. In study of El-Sharif (2005), this impact is studied through using four variables which are returns generated from oil prices volatility, returns generated by UK equity index, returns generated by foreign exchange rate movements, and lastly returns generated from short-term interest rate. Under the current study, one additional variable has been added in the overall model of the study i.e. returns generated from Natural Gas Prices Volatility. ...
This variable is considered in this study as the chief variable influencing the oil and gas sector companies returns. Returns generated from Gas Prices Volatility Gas prices, is the second factor which has the influences upon the returns of the oil and gas sector companies returns besides oil prices volatility. Returns generated by Equity Index of UK This variable is taken into consideration to study the overall influence of the equity market of UK upon oil and gas sector. Returns generated by Foreign Exchange Rate Movement Since UK is one of the largest oil producers in the European Union, therefore, it also exports oil and allied products to other nations as well. With such exports, the oil and gas sector of UK is highly impacted by the foreign currency movements as a result this factor is also studied under this research. Returns generated by Short-term Interest Rate Short-term interest rate is included in the model because it provides the alternative investment horizon to the investors. It is assumed that variability in the short-term interest rates can direct the decisions of investors. 3.6 Research Methodology (Edited) This research follows the literature that uses the international APT model. Previous studies facilitated their empirical analysis to relate impacts of global factors on stock returns (see Jorion, 1990; Khoo, 1994; Faff and Chan, 1998; Faff and Brailsford, 1999; Sadorsky, 2001; Sadorsky and Henriques, 2001). The two-factor version of the model used in most prior related studies is derived from the multi-factor model shown below: Ri,t = ? i ?+ ?kFk,t +? ?i,t (1) where Ri,t is the stock market’s excess return ...Download file to see next pagesRead More
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