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Volatility spillovers between crude oil price and stock markets: evidence from BRIC countries

Bhaskar Bagchi (Department of Science and Commerce, Alipurduar College, Alipurduar, West Bengal, India)

International Journal of Emerging Markets

ISSN: 1746-8809

Article publication date: 18 April 2017

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Abstract

Purpose

The purpose of this paper is to examine the dynamic relationship between crude oil price volatility and stock markets in the emerging economies like BRIC (Brazil, Russia, India and China) countries in the context of sharp continuous fall in the crude oil price in recent times.

Design/methodology/approach

The stock price volatility is partly explained by volatility in crude oil price. The author adopt an Asymmetric Power ARCH (APARCH) model which takes into account long memory behavior, speed of market information, asymmetries and leverage effects.

Findings

For Bovespa, MICEX, BSE Sensex and crude oil there is an asymmetric response of volatilities to positive and negative shocks and negative correlation exists between returns and volatility indicating that negative information will create greater volatility. However, for Shanghai Composite positive information has greater effect on stock price volatility in comparison to negative information. The study results also suggest the presence long memory behavior and persistent volatility clustering phenomenon amongst crude oil price and stock markets of the BRIC countries.

Originality/value

The present study makes a number of contributions to the existing literature in the following ways. First, the author have considered crude oil prices up to January 31, 2016, so that the study can reflect the impact of declining trend of crude oil prices on the stock indices which is also regarded as “new oil price shock” to measure the volatility between crude oil price and stock market indices of BRIC countries. Second, the volatility is captured by APARCH model which takes into account long memory behavior, speed of market information, asymmetries and leverage effects.

Keywords

Citation

Bagchi, B. (2017), "Volatility spillovers between crude oil price and stock markets: evidence from BRIC countries", International Journal of Emerging Markets, Vol. 12 No. 2, pp. 352-365. https://doi.org/10.1108/IJoEM-04-2015-0077

Publisher

:

Emerald Publishing Limited

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