Are stock market and exchange rate affected by oil price in Kazakhstan?

Abstract

This study explores the connection between oil price, stock prices, and exchange rate in Kazakhstan employing a monthly data from October 2007 to December 2017. Time series data were collected from National Bank of Kazakhstan, Kazakhstan Stock Exchange, and Energy Information Administration. Both bivariate and multivariate cases were employed. At the same time, the Johansen and Juselius cointegration procedures were employed in the study. The analysis was conducted for bivariate as well as multivariate cases. Empirical tests demonstrate that all the series are nonstationary in levels but stationary in differences. Results of this analysis do not find long-run correlation between the variables in a bivariate model, however, detect one in a multivariable model. Results demonstrate that stock prices and exchange rate are affected by oil price in Kazakhstan based on Granger causality test. Our findings imply that policy wise, monetary authorities in Kazakhstan in attaining their exchange rate policy objective should be considering the implications for financial market. These results are important to regulatory exchange authorities when deciding on policy to improve the market conditions.