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International Journal of Innovation and Applied Studies
ISSN: 2028-9324     CODEN: IJIABO     OCLC Number: 828807274     ZDB-ID: 2703985-7
 
 
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Modeling Dynamic Correlation between Crude Oil Price and Stock Price of Petrochemical and Refining companies (Using DCC-MGARCH)


Volume 10, Issue 3, March 2015, Pages 943–952
Accounting, Economics and Financial Management Conference (AEFMC 2014), Iran 26-27 October 2014

 Modeling Dynamic Correlation between Crude Oil Price and Stock Price  of Petrochemical and Refining companies (Using DCC-MGARCH)

Dr. Reza Tehrani1, Samaneh Nikookar2, Amir Khanali Pour3, and Azar Hamidi4

1 Department of Management, University Of Tehran, Tehran, Tehran, Iran
2 Department Of Ecomonics, University of Mazandaran, Tehran, Tehran, Iran
3 Department Of Ecomonics, University of Mazandaran, Tehran, Tehran, Iran
4 Department of Management, University Of Tehran, Tehran, Tehran, Iran

Original language: English

Received 28 February 2015

Copyright © 2015 ISSR Journals. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract


The present research is seeking for finding the answer to these questions that is there a negative, significant dynamic conditional correlation between stock price return of the petrochemical companies registered in Tehran Stock Exchange and West Texas Intermediate crude oil price return? Is there a positive, significant dynamic conditional correlation between stock price return of the petrochemical companies registered in Tehran Stock Exchange and West Texas Intermediate crude oil price return? The correlation between West Texas Intermediate crude oil price with stock price of the petrochemical companies registered in Stock Exchange including Abadan Petrochemical Co, Arak Petrochemical, Isfahan Petrochemical, Khark Petrochemical, Farabi Petrochemical, Tabriz Oil Refining, Bandar E Abbas Oil refining and Isfahan Oil refining were studied, following the above mentioned questions were replied , through DCC method. According to research results, the petrochemical companies, in general, have negative, significant conditioned correlation with the crude oil price meaning the overflowing of crude oil price over petrochemical companies' stock price. Of the petrochemical companies' stock prices only Isfahan Petrochemical Co stock price was positively correlated with the crude oil global price; however, this positive estimated effect is not statistically significant. Thus, the first hypothesis of the conditioned negative correlation varying over time between stock prices of petrochemical companies registered in the stock exchange and the crude oil global price cannot be rejected.
On the other hand, it is on the contrary to the refining companies registered in Tehran Stock Exchange such that the stock prices of all three refining companies are positively correlated with the crude oil global price. Its significance indicates the correlation variability overtime. It means that correlation is some days positive and some days negative; therefore, the median impact will be positive. However, the stock price of Tabriz refinery with the overflow symbol lacks any significant correlation; whereas, this correlation was positively estimated, too. Finally, according to research findings, research second hypothesis that there is a positive, significant relation between the refineries' stock prices and the crude oil global price cannot be rejected.


Author Keywords: Conditioned dynamic correlation, conditioned volatility, stock price, petrochemical and refinery companies, crude oil price.


How to Cite this Article


Dr. Reza Tehrani, Samaneh Nikookar, Amir Khanali Pour, and Azar Hamidi, “Modeling Dynamic Correlation between Crude Oil Price and Stock Price of Petrochemical and Refining companies (Using DCC-MGARCH),” International Journal of Innovation and Applied Studies, vol. 10, no. 3, pp. 943–952, March 2015.