Modelling Dynamic Conditional Correlations among Stock Price, Oil Price and Wheat Price of Pakistan, Using DCC GARCH Model

  • Munair Ahmed Umrani, Hakimzadi Wagan, Mansoor Khan, Ali Akbar Pirzado, Dr. Badshah Hussain


The purpose of this study was to examine dynamic conditional correlations among stock, oil and wheat price of Pakistan. The study has used the DCC GARCH model of (Engle,2002) for finding out the correlations. Secondary data was used for this research, and data is transformed into returns by taking logs levels. The findings of the study indicates that the stock, oil and wheat markets of Pakistan are correlated. Pakistan wheat market remained more volatile followed by stock market and oil market respectively. High wheat support prices, impact of world commodity prices and hoarding of wheat due to speculation results in high volatility in wheat price. Wheat market volatility were followed by stock market in Pakistan in our results. Political situation and herding behaviour were cited as the major reason for stock market volatility by investors in Pakistan. In our finding’s correlation between stock and oil price remained negative over most of our study period, this is in line with the findings of (Zeeshan and Ferhan,2019). According to them as Pakistan is oil importing country increase in oil prices increases production cost which ultimately affect the level of production at enterprises and returns of the stock markets negatively. Domestic wheat prices are more influenced by international wheat prices than domestic wheat support prices so high reliance on imported commodities should be avoided by increasing domestic production of wheat. Government shouldmaintain law and order situation to boost confidence of investors. Pakistan should use its existing energy resources efficiently and explore new sources of energy to decrease its reliance on imports.