Foreign exchange and oil price exposure in Thai energy stocks

Authors

  • Thaweerath Matthaweewongsa Rattanakosin College for Sustainable Energy and Environment (RCSEE)
  • Pard Teekasap Rattanakosin College for Sustainable Energy and Environment (RCSEE)
  • Tusanee Tondee Rattanakosin College for Sustainable Energy and Environment (RCSEE)
  • Sombat Teekasap

Keywords:

Oil prices, foreign exchange rate, CAPM, multi-factor model, GARCH model, stock exchange

Abstract

This research examines impacts of oil price and foreign exchange rate on stock prices of listed companies in oil-related sector of the stock exchange of Thailand (SET). Theoretical concept is based on multi-factor models including risk premium of market portfolio, oil price, and foreign exchange rate as factors determining risk premium of stock prices. The study employs traditional linear regression model, Autoregressive Conditional Heteroscedasticity (ARCH) model, and Generalized Autoregressive Conditional Heteroscedasticity (GARCH) model as econometric models determining the impacts of oil price and exchange rate. Since the study employs daily data, the empirical results find significant Generalized Autoregressive Conditional Heteroscedasticity (GARCH) effects in all models. Focusing on impacts of oil price on stock prices, the estimated results of both aggregate and disaggregate level analyses provide significant estimated coefficients of oil price on oil-related industry which confirm hypothesis of this study. World oil price has significant impacts on oil-related stock prices both aggregate and disaggregate levels. The directions of the impacts vary according to industry. Positive significant impacts are found in Energy and Utilities sector index and oil-directly-related stock prices. While negative significant impacts are determined in Finance and Securities sector index, Properties Development sector indices, Banking sector index, and Information Communication Technology sector. However, the results show unclear direction and insignificant impacts of oil price on oil-substitute stock prices. As a result, the findings confirm hypothesis that oil price have significant impacts on oil-directly-related stock prices due to their business mainly and heavily relied on oil while inconclusively prove influences of oil price on stock prices of oil-substitute business listed companies. Concerning on impacts of exchange rate on stock prices, the empirical results show inconclusive evidences of the impacts since only few significant coefficients of exchange rate are determined. The findings can be explained by the fact that after Thai financial crisis in 1997, most listed companies in Thailand, especially the companies in oil-related sectors, have experience and learn to hedge their position from foreign exchange rate risk, thus, foreign exchange rate has less and insignificant impact on Thai stock prices in these sectors.

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Published

21 June 2017

How to Cite

Matthaweewongsa, T., Teekasap, P., Tondee, T., & Teekasap, S. (2017). Foreign exchange and oil price exposure in Thai energy stocks. Journal of Renewable Energy and Smart Grid Technology, 12(1), 1–22. Retrieved from https://ph01.tci-thaijo.org/index.php/RAST/article/view/90323

Issue

Vol. 12 No. 1 (2017): January - June 2017

Section

Articles

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