scholarly journals Modeling and Testing Volatility Spillovers in Oil and Financial Markets for the USA, the UK, and China

Energies ◽  
2019 ◽  
Vol 12 (8) ◽  
pp. 1475 ◽  
Author(s):  
Chang ◽  
McAleer ◽  
Tian
Keyword(s):  
Financial Markets ◽  
Crude Oil ◽  
Stock Index ◽  
Financial Asset ◽  
Delayed Effect ◽  
Volatility Spillovers ◽  
Hedging Strategies ◽  
Oil Markets ◽  
The Usa ◽  
The Uk

The main purpose of the paper is to analyze the conditional correlations, conditional covariances, and co-volatility spillovers between international crude oil and associated financial markets. The prices of oil and its interactions with financial markets make it possible to determine the associated prices of financial derivatives, such as carbon emission prices. The approach taken in the paper is different from others in the literature; the purpose is to examine the usefulness of modeling and testing volatility spillovers in the oil and financial markets. The paper investigates co-volatility spillovers (namely, the delayed effect of a returns shock in one physical or financial asset on the subsequent volatility or co-volatility in another physical or financial asset) between the oil and financial markets. The oil industry has four major regions, namely North Sea, the USA, Middle East, and South-East Asia. Associated with these regions are two major financial centers, namely the UK and the USA. For these reasons, the data to be used are the returns on alternative crude oil markets, returns on crude oil derivatives, specifically futures, and stock index returns in the UK and the USA. Given the importance of the Chinese financial and economic systems, the paper also analyzes Chinese financial markets, where the data are more recent. The USA and China are the world's two largest economies and the UK is the world's sixth largest economy (and second in the existing EU) behind the USA, China, Japan, Germany, and India. Moreover, the USA and the UK are associated with WTI and Brent oil, respectively.  One of the purposes of the paper is to examine how China might be different from the USA and the UK, which seems to be borne out in the empirical analysis. Based on the conditional covariances to test the co-volatility spillovers, dynamic hedging strategies will be suggested to analyze market fluctuations in crude oil prices and associated financial markets.

Hedging the risk of travel and leisure stocks: The role of crude oil

2020 ◽  
pp. 135481662092262
Author(s):  
Naji Jalkh ◽  
Elie Bouri ◽  
Xuan Vinh Vo ◽  
Anupam Dutta
Keyword(s):  
Crude Oil ◽  
Implied Volatility ◽  
Stock Index ◽  
Model Specification ◽  
The United Kingdom ◽  
Crude Oil Prices ◽  
Oil Markets ◽  
Hedge Ratios ◽  
Correlation Process

Unlike previous studies, we examine which of the implied volatilities of US stock and crude oil markets are more suitable and effective hedge for the downside risk of US travel and leisure (T&L) stocks. Using the corrected dynamic conditional correlation process, the results show that the T&L stock index is more negatively and more consistently correlated with the implied volatility of crude oil prices, suggesting that the oil implied volatility is a more suitable hedging asset. Similar results are reported for France, the United Kingdom, and developed markets. They are robust to the frequency of the data and model specification. Furthermore, the hedge ratios vary over time, which requires a regular update of hedged positions. Importantly, the highest hedge effectiveness is associated with the oil implied volatility.

scholarly journals Does Islamic equity investment provide diversification benefits to conventional investors? Evidence from the multivariate GARCH analysis

2018 ◽  
Vol 13 (1) ◽  
pp. 267-289 ◽  
Author(s):  
Buerhan Saiti ◽  
Nazrul Hazizi Noordin
Keyword(s):  
Hong Kong ◽  
Southeast Asian ◽  
Multivariate Garch ◽  
Portfolio Diversification ◽  
Stock Index ◽  
Content Type ◽  
Asian Region ◽  
The Usa ◽  
The Uk ◽  
Stock Index Returns

Purpose The purpose of this paper is to quantify the extent to which the Malaysia-based equity investors can benefit from diversifying their portfolio into the conventional and Islamic Southeast Asian region and the world’s top ten largest equity indices (China, Japan, Hong Kong, India, the UK, the USA, Canada, France, Germany and Switzerland). Design/methodology/approach The multivariate GARCH-dynamic conditional correlation is deployed to estimate the time-varying linkages of the selected conventional and Islamic Asian and international stock index returns with the Malaysian stock index returns, covering approximately eight years daily starting from 29 June 2007 to 30 June 2016. Findings In general, in terms of volatility, the results indicate that both Asian and international Islamic stock indices are more or less volatile than its conventional counterparts. From the correlation analysis, we can see that both the conventional and Islamic MSCI indices of Japan provide more diversification benefits compared to Southeast Asian region, China, Hong Kong and India. Meanwhile, in terms of international portfolio diversification, the results tend to suggest that both the conventional and Islamic MSCI indices of the USA provide more diversification benefits compared to the UK, Canada, France, Germany and Switzerland. Originality/value The findings of this paper may have several significant implications for the Malaysia-based equity investors and fund managers who seek for the understanding of return correlations between the Malaysian stock index and the world’s largest stock market indices in order to gain higher risk-adjusted returns through portfolio diversification. With regard to policy implications, the findings on market shocks and the extent of the interdependence of the Malaysian market with cross-border markets may provide some useful insights in formulating effective macroeconomic stabilization policies in the efforts of preventing contagion effect from deteriorating the domestic economy.

Connectedness among crude oil prices, stock index and metal prices: An application of network approach in the USA

2019 ◽  
Vol 62 ◽  
pp. 57-65 ◽  
Author(s):  
Shaiara Husain ◽  
Aviral Kumar Tiwari ◽  
Kazi Sohag ◽  
Muhammad Shahbaz
Keyword(s):  
Crude Oil ◽  
Oil Prices ◽  
Stock Index ◽  
Network Approach ◽  
Crude Oil Prices ◽  
The Usa

THE ZERO LOWER BOUND AND CRUDE OIL AND FINANCIAL MARKETS SPILLOVERS

2016 ◽  
Vol 22 (3) ◽  
pp. 654-665 ◽  
Author(s):  
Apostolos Serletis ◽  
Libo Xu
Keyword(s):  
Monetary Policy ◽  
Lower Bound ◽  
Financial Markets ◽  
Crude Oil ◽  
Zero Lower Bound ◽  
Conditional Mean ◽  
Volatility Spillovers ◽  
Dummy Variable ◽  
Oil Market ◽  
Mean And Variance

We investigate mean and volatility spillovers between the crude oil market and the debt, stock, and foreign exchange markets. In doing so, we estimate a four-variable VARMA–GARCH model with a BEKK representation and also examine the possible effects of monetary policy at the zero lower bound by including a dummy variable in both the conditional mean and variance equations. We find that the crude oil market and the financial markets are tightly interconnected and that monetary policy at the zero lower bound has strengthened their linkages.

Sign in / Sign up

Export Citation Format

Share Document