Empirical Investigation into the Interlinkages Between the Price Movements of Energy Commodities and Stock Market in India

The present study is an attempt to empirically inquire into the behaviour of and integration between energy commodity prices and the benchmark index of the Indian securities market.For this, two prime energy commodities are considered, i.e., crude oil and natural gas and the Nifty 500, the broader market index of India's National Stock Exchange (NSE).The inquiry is based on data for the daily spot price (FUTCOM) of crude oils and natural gas in the evening session from January 1, 2017, to September 30, 2024, from the Multi Commodity Exchange of India and the daily close price of Nifty 500 index from the National Stock Exchange of India.Firstly, the series are tested for stationarity and transformed in the log return form.Next, a preliminary analysis is performed using graphical and descriptive methods.Then, the times series approach of the Vector Autoregressive (VAR) model, the Granger causality and the Johansen cointegration are applied to investigate the inter-relation among the three variables in the short and long run.The variables are found to be sensitive to external effects of the Covid-19 pandemic.Results establish bidirectional causality between the crude oil prices and the Nifty 500 index.Long-term equilibrium relationships among all three variables are discovered using the cointegration test.The study concludes that the connectedness among the trio variables is time-varying.The results have practical implications for the benefit of investors, traders, arbitrageurs, and managers in hedge and mutual funds, as they can consider the findings while designing and reframing risk management and hedging strategies.Similarly, the empirical results can benefit policymakers when drafting and designing policies governing the commodities and equity markets.