INVESTIGATING THE PREDICTIVE RELATIONSHIP BETWEEN FUEL PRICE VOLATILITY AND SECTORAL STOCK RETURNS IN PAKISTAN

Abstract

Introduction:

Fuel price volatility significantly influences Pakistan’s economic activity by affecting production and transportation costs, which in turn impact stock market performance. However, limited research has explored the predictive role of fuel price fluctuations on sectoral stock returns. This study examines how fuel price volatility relates to stock returns in the transportation, manufacturing, and energy sectors listed on the Pakistan Stock Exchange (PSX).

Objective:

The study aims to evaluate the predictive power of fuel price volatility on sectoral stock returns and identify which industries are most affected. The findings provide insights for investors, policymakers, and firms in managing fuel-related risks.

Methodology:

Using a quantitative research design, secondary data from 2015–2024 were analyzed. Monthly stock prices from PSX-listed firms and bi-monthly petrol and diesel prices were examined using descriptive statistics, correlation, regression models, and ANOVA tests to determine sectoral responses to fuel price changes.

Results:

Fuel price volatility strongly influences the transportation and energy sectors, while effects on manufacturing are mixed. The shipping and logistics subsector shows the highest sensitivity, whereas cement and fertilizer industries exhibit weaker performance. Regression results indicate that fuel price fluctuations explain only a small portion (1.7%–6.2%) of stock return variations, suggesting other macroeconomic factors play a key role.

Conclusion:

Fuel price volatility significantly affects stock returns in Pakistan, particularly in the transportation and energy sectors. Investors should monitor fuel trends in portfolio strategies, policymakers should promote price stability and alternative energy sources, and firms should adopt hedging and efficiency measures to mitigate risks.