Test for volatility spillover effects in Japan’s oil futures markets by a realized variance approach

Tadahiro Nakajima (Faculty of Economics, Kobe University, Kobe, Japan and The Kansai Electric Power Company, Incorporated, Osaka, Japan)

Studies in Economics and Finance

ISSN: 1086-7376

Publication date: 24 June 2019



The purpose of this paper is twofold. First, the paper examines the risk transmission between crude oil and petroleum product prices of Japan’s oil futures market. Second, it compares the performance of two tests for Granger causality using realized variance (RV) and the exponential generalized autoregressive conditional heteroscedasticity (EGARCH) model.


The author measures the daily RV of crude oil, kerosene and gasoline futures listed on the Tokyo Commodity Exchange using high-frequency data, and he examines the Granger causality in variance between these variables using the vector autoregression model. Further, the author estimates the EGARCH model based on daily data and test for Granger causality in variance between commodity futures using Hong’s (2001) approach.


The results of the RV approach reveal that the hypothesis on the existence of a mutual volatility spillover between crude oil and petroleum product markets is accepted. However, the results of the conventional approach indicate that all the hypotheses on Granger causalities in variance are rejected. The methodology based on intraday high-frequency data exhibits higher power than the conventional approach based on daily data.


This is the first paper to investigate Japan’s oil market using RV. The authors conclude that the approach based on RV is universally adoptable when testing for Granger causality in variance.



Nakajima, T. (2019), "Test for volatility spillover effects in Japan’s oil futures markets by a realized variance approach", Studies in Economics and Finance, Vol. 36 No. 2, pp. 224-239. https://doi.org/10.1108/SEF-01-2017-0011

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