The Effect of Fossil Fuels Price on Energy’s Stock Returns

Fossil fuels play an important role in energy systems as well as in the growth of technical, cultural and economic conditions of a country. In this study, we aim to investigate the effect of fossil fuels price towards energy’s stock returns in Malaysia by using monthly fossil fuels price and energy stock price taken from Malaysian Energy Commission and investing.com, respectively. To investigate their relationship, first we test the stationarity using Augmented Dickey Fuller Test (ADF). The result shows that the data are stationary at first differences. Next, we use Pearson correlation to measure the strength of the association between two variables. To observe the effect of fossil fuels prices on energy’s stock returns, we conduct a Multiple Linear Regression. We discovered that their relationships are not statistically significant. This is highly due to the competition of the use of non-renewable and renewable energy in recent years. The energy producers are adopting the renewable energy into the electricity grid which indirectly affect the utilization of fossil fuels as well as its price.