MODELING AND FORECASTING THE LINKAGE BETWEEN CRUDE OIL AND STOCK MARKET BEHAVIOR

Using a multivariate vector auto regression (VAR) approach, this paper attempts to forecast crude price and Indian stock market behavior post global financial crisis and test whether past crisis had any significant shock to the structure of Indian stock market in short and long run. This study divided the monthly time series in pre and post financial crisis period to develop an econometric forecasting model using VAR to test the impact of financial crisis using pre-crisis forecast model to predict post crisis period. Furthermore, the study used the Burns & Mitchell (1946); Bry and Boschan, (1971) ; Adler (2007); Harding & Pagan (2002) algorithm to find cyclicality in crude oil prices and stock market index. The study found a significant structural break in data and findings suggested that Indian stock market is not exposed to spillover shocks in long run but price cycle approach indicated that crude price exposed to a commodity cycle since 2008 which lasted till 2015. Finally, study revealed that Indian stock market never breached 5- year moving average downward even during the crisis.