Natural gas prices and stock prices: Evidence from EU-15 countries

• Published in: Economic modelling Vol. 29; no. 5; pp. 1646 - 1654
• Main Authors: Acaravci, Ali, Ozturk, Ilhan, Kandir, Serkan Yilmaz
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.09.2012; Elsevier Science Ltd
• Subjects: Causality; Cointegration; Economic activity; Economic models; Energy prices; EU-15 countries; Gasoline prices; Industrial production; Natural gas prices; Rates of return; Stock prices; Studies; Europe; C3; Stock prices; EU-15 countries; Q4; Cointegration; Economic activity; Natural gas prices; G1; O52
• ISSN: 0264-9993; 1873-6122
• DOI: 10.1016/j.econmod.2012.05.006

This study investigates the long-run relationship between natural gas prices and stock prices by using the Johansen and Juselius cointegration test and error–correction based Granger causality models for the EU-15 countries. We employ quarterly data covering the period from 1990:1 to 2008:1. Empirical findings suggest that there is a unique long-term equilibrium relationship between natural gas prices, industrial production and stock prices in Austria, Denmark, Finland, Germany and Luxembourg. However, no relationship is found between these variables in the other ten EU-15 countries. Although we detect a significant long-run relationship between stock prices and natural gas prices, Granger causality test results imply an indirect Granger causal relationship between these two variables. In addition, we investigate the Granger causal relationship between stock returns, industrial production growth and natural gas price increase for Austria, Denmark, Finland, Germany and Luxembourg. As a result, increase in natural gas prices seem to impact industrial production growth at the first place. In turn, industrial production growth appears to affect stock returns. ► Long-run relationship between natural gas prices and stock prices in EU-15 is examined. ► There is a unique long-term relationship between the variables only in five countries. ► Increase in natural gas prices seem to impact production growth at the first place. ► In turn, industrial production growth appears to affect stock returns.