Contagion effect of the oil shock and US financial crisis on the GCC and BRIC countries
International Journal of Energy Sector Management
ISSN: 1750-6220
Article publication date: 18 November 2013
Abstract
Purpose
This paper aims to employ GARCH-class models (GARCH, IGARCH and CGARCH) to estimate the volatility persistence on crude oil, US, Gulf Corporation Council (GCC), Brazil, Russia, India and China (BRIC) stock markets. Also, the paper investigates the volatility spillover and the dynamic conditional correlation between crude oil, US stock index and stock indices of GCC and BRIC countries. The results prove a high degree of volatility persistence in the crude oil and stock markets. Based on the BEKK-GARCH and DCC-GARCH results, the paper finds strong evidence of the contagion effect of the oil shock and US financial crisis of 2008 on GCC and BRIC stock markets.
Design/methodology/approach
In the beginning, the paper uses univariate GARCH models to estimate the volatility persistence of the oil market, US stock market, and GCC and BRIC stock markets. Then, the paper uses a trivariate BEKK-GARCH model of Malik and Hammoudeh to examine the volatility spillover between oil market, US stock market and stock markets for GCC and BRIC countries. Finally, the paper analyses the dynamic conditional correlation between US market and each stock market of GCC and BRIC countries using the DCC-GARCH model. Also, the paper estimates the dynamic conditional correlation between oil market and all stock markets.
Findings
The results indicate the contagion effect of the oil shock and US financial crisis of 2008 on the GCC stock markets which are among the most important oil-exporting countries and also on BRIC stock markets which are among the emergent countries which are characterized by high economic growth level.
Originality/value
The contribution of this paper is to investigate the existence of contagion effect between oil market, US stock market and two panels of emerging stock markets which have different economic characteristics, the GCC and BRIC countries, during the oil shock and US financial crisis period of 2008-2009.
Keywords
Acknowledgements
JEL classification – C32, G14, G15, G17 The authors would like to thank the editor and an the anonymous referee for their valuable and helpful comments. The authors are responsible for all remaining errors.
Citation
Ghorbel, A. and Boujelbene, Y. (2013), "Contagion effect of the oil shock and US financial crisis on the GCC and BRIC countries", International Journal of Energy Sector Management, Vol. 7 No. 4, pp. 430-447. https://doi.org/10.1108/IJESM-04-2012-0002
Publisher
:Emerald Group Publishing Limited
Copyright © 2013, Emerald Group Publishing Limited