Global oil price transmission to domestic diesel prices, andthe impact on listed firm's profitability and stock market returns : evidence from Thailand

Abstract

This research paper provides a comprehensive analysis of the dynamics of volatile oil prices over the past two decades, with a focus on the stock exchange of Thailand from the period of 2004 to 2022. Firstly, the study utilizes the Vector Autoregressive Model (VAR) technique to examine the impact of global oil price fluctuations on domestic fuel prices and the stock market in Thailand. The findings reveal that changes in global oil prices have a delayed and indirect effect on the Thai stock market. The transmission of volatility through domestic diesel prices is a crucial factor in this relationship. Notably, domestic diesel prices exhibit an immediate influence on the stock market, serving as a reliable indicator of economic growth. These insights shed light on the dynamic nature of the interactions between diesel prices, global oil prices, and the stock market in Thailand. Furthermore, the study investigates the impact of changes in domestic diesel prices on the accounting performance measures of energy sector firms. Through sub-sample analysis, the sample is divided into groups based on their association with energy prices. The results demonstrate a positive and significant effect of domestic diesel prices on accounting returns, particularly the return on assets (ROA), across the energy sector. The effect is more pronounced within the oil and gas companies. This highlights the dominant role of commodity prices, particularly diesel prices, as explanatory factors for accounting performance measures in the energy sector. Overall, this research contributes valuable insights into the temporal relationship between commodity prices, stock market performance, and accounting performance in the energy sector. By examining the dynamics of volatile oil prices and their impact on the stock exchange and accounting measures, this study enhances our understanding of the interconnections and dynamics within the energy sector and its relationship with the broader economy.