The effect of oil price and currency volatility on the stock price of oil and gas companies in South Africa

Abstract

Oil Price volatility is a measure of the variation in the oil price over a given period of time. This measure gives an indication of the risk associated with the asset. In this study, oil price volatility and the rand dollar exchange were studied. The effects of these parameters on Sasol share price, a major player in the oil and gas sector of the listed companies in the stock was studied. Results showed that the Brent crude oil price volatility was mean reverting. Daily returns on the oil price showed a heteroscedastic type of behaviour. Cross sectional analysis of the results of Brent crude oil price and the rand dollar exchange show an inverse proportionality between the oil price movement and the rand dollar exchange rate. This inverse proportionality can also be interpreted as the lagged response of the rand dollar exchange to the oil price. Sasol share price showed a positive correlation with the oil price.