International gasoline price pass-through effects and the impact of domestic ex-pump prices on stock returns
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Date
2016-06
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KNUST
Abstract
ABSTRACT
Domestic fuel pricing is a touchy subject for governments all over the world. Many
advanced countries have adopted a full deregulation of their petroleum sectors to ensure
that fuel prices are determined by the market. Governments of many developing and
emerging economies however intervene to influence the timing and degree of changes in
international fuel prices to domestic prices. These interventions not only account for the
huge disparity in prices of petroleum product across the world but also result in the
distortion of domestic fuel price from international prices, making it more difficult to
predict. The first part of this study seeks to examine pass-through effects of international
gasoline prices to domestic ex-pump prices to determine the timing and magnitude of
changes in domestic prices as a result of changes in international prices in Ghana. Many
researchers use crude oil price as a proxy for energy cost in their studies on Ghana and
other developing countries, however, the distortions in domestic price as a result of
government intervention makes the use of crude oil misleading when studying energy
cost on domestic businesses. The second part of this study thus explores the impact of
energy costs on stock returns in Ghana using domestic ex-pump gasoline price as a
proxy. Empirical methods like Johansen cointegration model, Vector Autoregressive
model (VAR), Vector Error Correction Model (VECM), Granger causality tests as well
as Toda-Yamamoto procedure were adopted in the study. The results suggest both long
and short run relationships between international and domestic ex-pump gasoline prices
with changes on international gasoline market having an impact on domestic prices after
three weeks although with minimal pass-through. The result from the second part of the
study establishes causality from ex-pump gasoline prices to the Ghana stock exchange
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albeit weakly and also shows that gasoline prices impact the stock exchange after ten
weeks.
Description
A thesis submitted to the School of Business, College of Arts and Social Sciences
in partial fulfillment of the requirement for the degree of Master of Science in Finance and Investment