The purpose with this master thesis has been to test if changes in the oil price have an influence on the American stock index: the S&P 500. During this master thesis I have tested if the volatility in the oil price have an influence on the S&P 500 by using empirical studies. The study is based on the conditional volatility model. Through a GARCH model the conditional variance of both the oil price and the S&P 500 has been explained. Both the oil price and the S&P 500 have been distributed by the Student-T distribution and both have been optimized with the Maximum Likelihood method. The volatility of the oil price has also been included in the S&P 500´s GARCH model through an externally explanatory variable. The result of the studies shows that the volatility of the oil price is significant with a 95 percent confidence. Furthermore the result shows that the externally explainable variable only has a correlation coefficient on 0.00864 percent. The effect of only 0.008646 percent gives the oil price volatility very low explanatory power. That low that its influence on the S&P 500 is questioned. The variability test shows that a GARCH model with a oil price volatility as an explainable variable can not explain more observation of the S&P 500 then the GARCH model without this explainable variable. Furthermore the model does not improve the standardized residuals to the S&P 500. Because of the lack of model improvement the study reject the hypothesis that oil prices volatility has an influence on the S&P 500.
|Educations||MSc in Finance and Accounting, (Graduate Programme) Final Thesis|
|Number of pages||83|