352 Journal of Reviews on Global Economics, 2020, 9, 352-365 E-ISSN: 1929-7092/20 © 2020 Lifescience Global The Impact of Oil Price Changes on FTSE/JSE Industry Indices Performance Eddson Zengeni and Mashukudu Hartley Molele * Wits Business School, 2 St Davids Pl & St Andrew Rd, Parktown, Johannesburg, 2193, South Africa Abstract: The impact of oil price changes on stock market index of the JSE, South Africa, was examined using NARDL model using 2008 -2017 monthly data of aggregated industrial indices. All-Share index was incorporated in the estimation equation to represent market factors. The results indicate that in the short-term, the indices responded asymmetrically to oil price changes whilst in the long-term they responded symmetrically. Oil & Gas, Industrials, Consumers services and Technology indices followed oil price change direction whereas Consumer goods and Financials indices opposed oil price change direction. Healthcare and Telecommunications responded in one direction irrespective oil price change direction. Keywords: Non-linear ARDL, Oil prices, Stock Market index, JSE. 1. INTRODUCTION Extensive research has been conducted to understand the impact of oil price changes on macroeconomic factors (Batac & Tatlonghari, 2013; Hussin, Muhammad, Hussin, & Razak, 2012; Sahu & Mondal, 2015; Sedick, 2016; Wong & El Massah, 2017). Most of these were predominantly based on static techniques lacking the capability for simultaneous long-term and short-term relationship evaluation nor distinguishing between positive and negative changes. Research efforts to establish the impact of oil prices changes on stock market performance have yielded contradictory findings, e.g. for South African alone, one group of researchers found minimal impact of oil price changes on stock markets (Chinzara, 2011) yet another group reported a positive relationship between world oil price changes and stock prices (Chisadza, Dlamini, Gupta, & Modise, 2016). Oil price changes have varying economic performance impact on oil exporting countries compared to oil importing countries. For oil exporting mono-structured economies, like Nigeria, economic performance follows oil prices change direction due to impact on export revenue (Adetunji Babatunde, Adenikinju, & Adenikinju, 2013). However, oil importing countries like South Africa performance opposes the oil price change direction. Increase in oil price leads to cost of production increase resulting in companies reducing their production output to reduce cost if prices are maintained the same. In the event of increased prices to offset the increased cost of production, demand for the products will decrease. (Sahu & Mondal, 2015). Figure 1 shows the historic performance of the nine industry indices on the JSE over the 10 year period under evaluation. *Address correspondence to this author at the Wits Business School, 2 St Davids Pl & St Andrew Rd, Parktown, Johannesburg, 2193, South Africa; E-mail: mhmolele@gmail.com This understanding on the impact of oil price changes on macroeconomic variables such as GDP growth (Balcilar, van Eyden, Uwilingiye, & Gupta, 2017; Lardic & Mignon, 2008), exchange rate (Adebiyi, Adenuga, Abeng, & Omanukwue, 2009; Hussin et al., 2012; Iheanacho, 2016; Lawal, Somoye, & Babajide, 2016; Sahu & Mondal, 2015; Sedick, 2016) and inflation (Cologni & Manera, 2008; Cunado & De Gracia, 2005; Duma, 2008; Lacheheb & Sirag) prompted the need to understand whether oil price changes have impact on stock market performance. Researchers have since used various methods to evaluate this impact at different levels of the stock market (Maghyereh, 2006; S. Mohanty, Nandha, & Bota, 2010; Ogiri, Amadi, Uddin, & Dubon, 2013; Salisu & Oloko, 2015; Scholtens & Yurtsever, 2012; Shammas, 2012; Zhang & Chen, 2011; Zhu, Li, & Yu, 2011) There remains the need to understand how various stock market industries are impacted by oil price changes and whether this impact is long-term or short-term and how symmetrical is it. Looking at typical historical relationship between oil price and two of South African industry indices, Figure 2a and b, it appears that Basic Materials (J510) are highly impacted by oil price changes than Consumer goods (J530) industry. These high-level observations cement the need to understand variations of oil price change impact on different industries. This research seeks to investigate the impact of oil price changes on industry performance in the South African context as measured by stock market performance using a newly developed dynamic method, the NARDL. The method allows to evaluate the impact of oil price changes in both the short-term and long-term and whether these changes price have symmetrical effect on the performance on industry performance. The