Abstract
The study investigates the impact of oil prices on firm level equity return in case of Pakistan over the period 1998-2014, as this relationship is neglected by the previous literature. By using the panel data estimation, the results of full sample indicate significant positive effect of oil price changes on firm equity returns in the same period, whereas, the lagged oil price changes have significant negative effect on firms' equity return. Moreover, the industry level analysis also confirms the similar findings; results indicate significant positive impact of oil price on firms' equity return in full sample, textile, chemical and miscellaneous industry, while the lagged oil prices change negatively affect the stock returns of full sample and all the industries except tobacco, jute and vanaspati industries. The study confirms that rise in oil price transfer a positive signal in the stock market that boosts the firm-level equity return in Pakistan. In contrast to the negative shocks, the stock returns are significantly affected by the positive oil price shocks.