After moving to market-determined pricing, there should be no tinkering with the oil-pricing mechanism by policymakers to ensure the desired stability in stock markets, say the authors.
Vaibhav Aggarwal, Assistant Professor, Jindal Global Business School, O.P. Jindal Global University, Sonipat, Haryana, India.
Mrityunjay Kumar Tiwary, Indian Institute of Management, Lucknow, Uttar Pradesh, India.
The Indian economy deregulated its oil price regime and moved from state-administered to market-linked pricing. This study examines the impact of deregulation on volatility transmission between international oil prices and Indian stock markets.
The findings show that due to continual interventions in the form of taxation changes and price freeze during elections, not only did the short-term spillover of oil prices on stock markets strengthen, but the long-term spillover also continues to remain, despite oil price deregulation.
This implies that after moving to market-determined pricing, there should be no tinkering with the oil-pricing mechanism by policymakers to ensure the desired stability in stock markets.
Published in: Economic and Political Weekly
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