Yield and Volatility of Pharmaceutical Industry under the Russia-Ukraine Conflict: A Perspective of Changes in Oil Price

Abstract

The Russian-Ukraine conflict has resulted in a series of impacts on the economy, one of which is rising energy prices. This paper studies the impact of oil price changes on pharmaceutical returns by employing time series methods to construct VAR and ARMA-GARCH models. This paper finds that an increase in either WTI or Brent futures creates a small negative net impact on pharmaceutical returns, and the time for this impact is only observable in the short run. The VAR model suggests that the WTI and Brent return’s lagged value at period 5 presents a significant relation with the present value of the pharmaceutical returns. The ARMA-GARCH model locates a GARCH effect between past values of oil price changes and pharmaceutical returns/ However, it shows no sufficient evidence to support the claim that oil price changes contain any effect on pharmaceutical returns. The findings of this paper can serve as a reference for researchers and traders alike who are interested in understanding the effect of specific macroeconomic factors on the returns of the pharmaceutical industry.