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1 – 10 of 578The purpose of this paper is to investigate the volatility spillover from crude oil and gold to the BRICS stock markets, after removing the effect of co-movement of prices of crude…
Abstract
Purpose
The purpose of this paper is to investigate the volatility spillover from crude oil and gold to the BRICS stock markets, after removing the effect of co-movement of prices of crude oil and gold.
Design/methodology/approach
Three multivariate GARCH models (dynamic conditional correlation, constant conditional correlation, and Baba, Engle, Kraft and Kroner) are used to capture the dynamic relationship between the crude oil and gold returns. The innovations from gold and oil are orthogonalized, and the EGARCH model is employed for the spillover analysis. The influences of oil price shocks and gold price shocks are tested on the returns of each of the BRICS equity markets.
Findings
There is evidence of volatility spillover from both the crude oil and gold to the BRICS stock markets. A sub-sample analysis suggests that the volatility spillover from gold was not significant before the financial crisis of 2008, but became significant post-crisis. The volatility asymmetry, which was not significant before the crisis, also became significant after it.
Originality/value
This study examines the volatility spillover to the BRICS stock markets from crude oil and gold, after accounting for the co-movement in their prices. It can help equity investors to judge whether gold can provide incremental diversification benefit, if used in conjunction with crude oil. The study also provides insights into the changes caused by the 2008 financial crisis on this volatility spillover mechanism.
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Shailesh Rastogi, Adesh Doifode, Jagjeevan Kanoujiya and Satyendra Pratap Singh
Crude oil, gold and interest rates are some of the key indicators of the health of domestic as well as global economy. The purpose of the study is to find the shock volatility and…
Abstract
Purpose
Crude oil, gold and interest rates are some of the key indicators of the health of domestic as well as global economy. The purpose of the study is to find the shock volatility and price volatility effects of gold and crude oil market on interest rates in India.
Design/methodology/approach
This study finds the mutual and directional association of the volatility of gold, crude oil and interest rates in India. The bi-variate GARCH models (Diagonal VEC GARCH and BEKK GARCH) are applied on the sample data of gold price, crude oil price and yield (interest rate) gathered from November 30, 2015 to November 16, 2020 (weekly basis) to investigate the volatility association including the volatility spillover effect in the three markets.
Findings
The main findings of the study focus on having a long-term conditional correlation between gold and interest rates, but there is no evidence of volatility spillover from gold and crude oil on the interest rates. The findings of the study are of great importance especially to the policymakers, as they state that the fluctuations in prices of gold and crude oil do not adversely impact the interest rates in India. Therefore, the fluctuations in prices of gold and crude may generally impact the economy, but it has nothing to do with interest rate in particular. This implies that domestic and foreign investments in the country will not be affected by gold and crude oil that are largely driven by interest rates in the country.
Practical implications
Gold and crude oil are two very important commodities that have their importance not only for domestic affairs but also for international business. They veritably influence the economy including forex exchange for any nation. In addition to this, the researchers believe the findings will provide insights to policymakers, stakeholders and investors.
Originality/value
Gold and crude oil undoubtedly influence the exchange rates but their impact on the interest rates in an economy is not definite and remains ambiguous owing to the mixed findings of the studies. The lack of studies related to the impact of gold and crude oil on the interest rates, despite them being essentials for the health of any economy is the main motivation of this study. This study is novel as it investigates the volatility impact of crude oil and gold on interest rates and contributes to the existing literature with its findings.
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The crude oil market has experienced an unprecedented overreaction in the first half of the pandemic year 2020. This study aims to show the performance of the global crude oil…
Abstract
Purpose
The crude oil market has experienced an unprecedented overreaction in the first half of the pandemic year 2020. This study aims to show the performance of the global crude oil market amid Covid-19 and spillover relations with other asset classes.
Design/methodology/approach
The authors employ various pandemic outbreak indicators to show the overreaction of the crude oil market due to Covid-19 infection. The analysis also presents market connectedness and spillover relations between the crude oil market and other asset classes.
Findings
One of the essential findings the authors report is that the crude oil market remains more responsive to pandemic fake news. The shock of the global pandemic panic index and pandemic sentiment index appears to be more promising. It has also been noticed that the energy trader's sentiment (OVX and OIV) was measured at a too high level within the Covid-19 outbreak. Volatility spillover analysis shows that crude oil and other market are closely connected, and the total connectedness index directs on average 35% contribution from spillover. During the initial growth of the infection, other macroeconomic and political events remained to favor the market. The second phase amidst the pandemic outbreak harms the global crude oil market. The authors find that infectious diseases increase investor panic and anxiety.
Practical implications
The crude oil investors' sentiment index OVX indicates fear and panic due to infectious diseases and lack of hedge funds to protect energy investments. The unparalleled overreaction of the investors gauged in OVX indicates market participants have paid an excessive put option (protection) premium over the contagious outbreak of the infectious disease.
Originality/value
The empirical model and result reported amid Covid-19 are novel in terms of employing a news-based index of the pandemic, which are based on the content analysis and text search using natural processing language with the aid of computer algorithms.
研究目的
原油市場在流行病肆虐的2020年的頭半年經歷史無前例的過度反應。本文旨在顯示全球原油市場在2019冠狀病毒病流行期間的表現及原油市場與其它資產類別之溢出關係.
研究設計/方法/理念
我們使用各種大流行病爆發的指標,來顯示原油市場因2019冠狀病毒病的感染而過度反應。我們的分析亦涉及市場的關聯性及原油市場與其它資產類別之溢出關係.
研究結果
我們其中一個基本的發現是: 原油市場仍對大流行病的虛假新聞有更迅速的反應。全球大流行病恐慌性指數及大流行病情緒指數所帶來的震驚似乎是有希望的。大家亦察覺,能源交易商的情緒(OVX及OIV) 在2019冠狀病毒病爆發期間被測量為處於太高的水平。波動溢出分析顯示、原油與其它市場有密切的關係,而總關聯度指數引導平均35%來自溢出量的作用。在感染傳播初期,其它的宏觀經濟和政治事件仍對市場有利。在大流行病爆發期間的第二階段則損害全球原油市場。我們發現,傳染病會增加投資者的恐慌和焦慮.
實際的意義
原油投資者的情緒指數OVX顯示因傳染病及因缺乏對沖基金來保障能源投資而帶來的懼怕和恐慌。於OVX測算到的投資者空前的過度反應顯示市場參與者就這傳染病的感染爆發付出過量的賣權(保障)權利金.
研究的原創性
我們的經驗模型和在2019冠狀病毒病肆虐期間匯報的研究結果,從使用以新聞為基礎的流行病指數的角度而言是新穎的。而這些全以內容分析和正文搜尋為基礎、使用自然語言處理,並輔以計算機算法.
Shuifeng Hong, Yimin Luo, Mengya Li and Duoping Yang
This paper aims to empirically investigate time–frequency linkages between Euramerican mature and Asian emerging crude oil futures markets in terms of correlation and risk…
Abstract
Purpose
This paper aims to empirically investigate time–frequency linkages between Euramerican mature and Asian emerging crude oil futures markets in terms of correlation and risk spillovers.
Design/methodology/approach
With daily data, the authors first undertake the MODWT method to decompose yield series into four different timescales, and then use the R-Vine Copula-CoVaR to analyze correlation and risk spillovers between Euramerican mature and Asian emerging crude oil futures markets.
Findings
The empirical results are as follows: (a) short-term trading is the primary driver of price volatility in crude oil futures markets. (b) The crude oil futures markets exhibit certain regional aggregation characteristics, with the Indian crude oil futures market playing an important role in connecting Euramerican mature and Asian emerging crude oil futures markets. What’s more, Oman crude oil serves as a bridge to link Asian emerging crude oil futures markets. (c) There are significant tail correlations among different futures markets, making them susceptible to “same fall but different rise” scenarios. The volatility behavior of the Indian and Euramerican markets is highly correlated in extreme incidents. (d) Those markets exhibit asymmetric bidirectional risk spillovers. Specifically, the Euramerican mature crude oil futures markets demonstrate significant risk spillovers in the extreme short term, with a relatively larger spillover effect observed on the Indian crude oil futures market. Compared with India and Japan in Asian emerging crude oil futures markets, China's crude oil futures market places more emphasis on changes in market fundamentals and prefers to hold long-term positions rather than short-term technical factors.
Originality/value
The MODWT model is utilized to capture the multiscale coordinated motion characteristics of the data in the time–frequency perspective. What’s more, compared to traditional methods, the R-Vine Copula model exhibits greater flexibility and higher measurement accuracy, enabling it to more accurately capture correlation structures among multiple markets. The proposed methodology can provide evidence for whether crude oil futures markets exhibit integration characteristics and can deepen our understanding of connections among crude oil futures prices.
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Shailesh Rastogi and Jagjeevan Kanoujiya
This study aims to analyze the volatility spillover effects of crude oil, gold price, interest rate (yield) and the exchange rate (USD (United States Dollar)/INR (Indian National…
Abstract
Purpose
This study aims to analyze the volatility spillover effects of crude oil, gold price, interest rate (yield) and the exchange rate (USD (United States Dollar)/INR (Indian National Rupee)) on inflation volatility in India.
Design/methodology/approach
This study uses the multivariate Generalized Autoregressive Conditional Heteroscedasticity (GARCH) models (Baba, Engle, Kraft and Kroner [BEKK]-GARCH and dynamic conditional correlation [DCC]-GARCH) to examine the volatility spillover effect of macroeconomic indicators and strategic commodities on inflation in India. The monthly data are collected from January 2000 till December 2020 for the crude oil price, gold price, interest rate (5-year Indian bond yield), exchange rate (USD/INR) and inflation (wholesale price index [WPI] and consumer price index [CPI]).
Findings
In BEKK-GARCH, the results reveal that crude oil price volatility has a long time spillover effect on inflation (WPI). Furthermore, no significant short-term volatility effect exists from crude oil market to inflation (WPI). However, the short-term volatility effect exists from crude oil to inflation while considering CPI as inflation. Gold price volatility has a bidirectional and negative spillover effect on inflation in the case of WPI. However, there is no price volatility spillover effect from gold to inflation in the case of CPI. The price volatility in the exchange rate also has a negative spillover effect on inflation (but only on CPI). Furthermore, volatility of interest rates has no spillover effect on inflation in WPI or CPI. In DCC-GARCH, a short-term volatility impact from all four macroeconomic indicators to inflation is found. Only crude oil and exchange rate have long-term volatility effect on inflation (CPI).
Practical implications
In an economy, inflation management is an essential task. The findings of the current study can be beneficial in this endeavor. The knowledge of the volatility spillover effect of all the four markets undertaken in the study can be significantly helpful in inflation management, especially for inflation-targeting policy.
Originality/value
It is observed that no other study has addressed this issue. We do not find any other research which studies the volatility spillover effect of gold, crude oil, interest rate and exchange rate on the inflation volatility. The current study is novel with a significant contribution to the vast knowledge in this context.
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Sercan Demiralay, Nikolaos Hourvouliades and Athanasios Fassas
This paper aims to examine dynamic equicorrelations (DECO) and directional volatility spillover effects among four energy futures markets, namely, West Texas Intermediate crude oil…
Abstract
Purpose
This paper aims to examine dynamic equicorrelations (DECO) and directional volatility spillover effects among four energy futures markets, namely, West Texas Intermediate crude oil, heating oil, natural gas and reformulated blendstock for oxygenate blending gasoline, by using a multivariate fractionally integrated asymmetric power ARCH–DECO–generalized autoregressive conditional heteroskedasticity (GARCH) model and the spillover index technique.
Design/methodology/approach
The empirical analysis uses the dynamic equicorrelation model of Engle and Kelly (2012) to examine time-varying correlations at equilibrium. The authors further analyze dynamic volatility transmission among energy futures by using Diebold and Yilmaz (2012) dynamic spillover index based on generalized value-at-risk framework.
Findings
The empirical results provide evidence of heightened equicorrelations at times of financial turmoil. More specifically, the dynamic spillover analysis shows that volatility is transmitted predominantly from crude oil to the other markets and risk transfer among four markets exhibits asymmetries. Spillovers are found to be highly responsive to dramatic events such as the 9/11 terror attack, 2008–2009 global financial crisis and 2014–2016 oil glut.
Practical implications
The results of this study have important practical implications for investors, portfolio managers and energy policymakers as the presence of time-varying co-movements and spillovers suggests the need for dynamic trading strategies. There are also implications regarding risk management practices, as there is evidence of increased volatility transmission at times of financial turmoil and uncertainty. Finally, the results provide insights to policymakers in a better understanding of the spillover dynamics.
Originality/value
This paper investigates the DECOs and spillover effects among crude oil, natural gas, heating oil and gasoline futures markets. To the best of the knowledge, this is one of a few studies that examine co-movements and risk transfer in energy futures in a comprehensive framework.
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In this paper, the authors aim to investigate the return, volatility and correlation spillover effects between the crude oil market and the various Indian industrial sectors…
Abstract
Purpose
In this paper, the authors aim to investigate the return, volatility and correlation spillover effects between the crude oil market and the various Indian industrial sectors (automobile, financial, service, energy, metal and mining, and commodities sectors) in order to investigate optimal portfolio construction and to estimate risk minimizing hedge ratios.
Design/methodology/approach
The authors compare bivariate generalized autoregressive conditional heteroskedasticity models (diagonal, constant conditional correlation and dynamic conditional correlation) with the vector autoregressive model as a conditional mean equation and the vector autoregressive moving average generalized autoregressive conditional heteroskedasticity model as a conditional variance equation with the error terms following the Student's t distribution so as to identify the model that would be appropriate for optimal portfolio construction and to estimate risk minimizing hedge ratios.
Findings
The authors’ results indicate that the dynamic conditional correlation bivariate generalized autoregressive conditional heteroskedasticity model is better able to capture time‐dynamics in comparison to other models, based on which the authors find evidence of return and volatility spillover effects from the crude oil market to the Indian industrial sectors. In addition, the authors find that the conditional correlations between the crude oil market and the Indian industrial sectors change dynamically over time and that they reach their highest values during the period of the global financial crisis (2008‐2009). The authors also estimate risk minimizing hedge ratios and oil‐stock optimal portfolio holdings.
Originality/value
This paper has empirical originality in investigating the return, volatility and correlation spillover effects from the crude oil market to the various Indian industrial sectors using BVGARCH models with the error terms assumed to follow the Student's t distribution.
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This paper investigates the dynamic intercorrelation among cryptocurrency (Bitcoin) and conventional financial assets (gold, oil and S&P 500).
Abstract
Purpose
This paper investigates the dynamic intercorrelation among cryptocurrency (Bitcoin) and conventional financial assets (gold, oil and S&P 500).
Design/methodology/approach
The dynamic contemporaneous nexus has been analyzed using spillover index developed and extended by Diebold and Yilmaz (2012, 2014) and Kyrtsou-Labys (2006) nonlinear causality tests. This study is implemented using the daily data spanning from January 2013 to December 2021.
Findings
First, using the spillover index, the authors find evidence that the S&P 500 was a net transmitter of volatility from oil and gold markets, but a net receiver of volatility from Bitcoin. Return spillovers from crude oil were transmitted first to gold, and Bitcoin markets and return spillovers from gold were transmitted to Bitcoin. Second, Kyrtsou-Labys nonlinear causality tests provide us further insights into the lead-lag interconnections among the four key considered variables from the economic perspective. Specifically, a close inspection of these empirical results, the integration of the four key assets is significant. Similarly, price fluctuation dependency among Bitcoin, stock, gold and oil markets is generally minimal, but it strengthens throughout the COVID-19 period.
Originality/value
This paper is the first study employing the spillover index Diebold-Yilmaz alongside with Kyrtsou-Labys nonlinear causality tests not only to capture the directional return spillover effects but also to highlight the potential presence of asymmetric causality relationships, nonlinear effects among assets under investigation that the previous studies have been ignored in these relations. Therefore, the main contribution of this article to the related literature in this field is significant.
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Maria Babar, Habib Ahmad and Imran Yousaf
This study examines the information transmission (return and volatility spillovers) among energy commodities (crude oil, natural gas, Brent oil, heating oil, gasoil, gasoline) and…
Abstract
Purpose
This study examines the information transmission (return and volatility spillovers) among energy commodities (crude oil, natural gas, Brent oil, heating oil, gasoil, gasoline) and Asian stock markets which are net importers of energy (China, India, Indonesia, Malaysia, Korea, Pakistan, Philippines, Taiwan, Thailand).
Design/methodology/approach
The information transmission is investigated by employing the spillover index of Diebold and Yilmaz, using daily data for the period January 2000 to May 2021.
Findings
A Strong connectedness is documented between the two classes of asset, especially during crisis periods. Our findings reveal that most of the energy markets, except gasoil and natural gas, are net transmitters of information, whereas all the stock markets, excluding Indonesia and Korea, are net recipients.
Practical implications
The findings are helpful for portfolio managers and institutional investors allocating funds to various asset classes in times of crisis.
Originality/value
All data is original.
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Mouna Abdelhedi and Mouna Boujelbène-Abbes
The purpose of this paper is to empirically investigate the volatility spillover between the Chinese stock market, investor’s sentiment and oil market, specifically during the…
Abstract
Purpose
The purpose of this paper is to empirically investigate the volatility spillover between the Chinese stock market, investor’s sentiment and oil market, specifically during the 2014‒2016 turmoil period.
Design/methodology/approach
This study used the daily and monthly China market price index, oil-price index and composite index of Chinese investor’s sentiment. The authors first use the DCC GARCH model in order to study the correlation between variables. Second, the authors use a continuous wavelet decomposition technique so as to capture both time- and frequency-varying features of co-movement variables. Finally, the authors examine the spillover effects by estimating the BEKK GARCH model.
Findings
The wavelet coherency results indicate a substantial co-movement between oil and Chinese stock markets in the periods of high volatility. BEKK GARCH model outcomes confirm this relation and report the noteworthy bidirectional transmission of volatility between oil market shocks and the Chinese investor’s sentiment, chiefly in the crisis period. These results support the behavioral theory of contagion and highlight that the Chinese investor’s sentiment is a channel through which shocks are transmitted between the oil and Chinese equity markets. Thus, these results are important for Chinese authorities that should monitor the investor’s sentiment to better control the interaction between financial and real markets.
Originality/value
This study makes three major contributions to the existing literature. First, it pays attention to the recent 2015 Chinese stock market bumble. Second, it has gone some way toward enhancing our understanding of the volatility spillover between the investor’s sentiment, investor’s sentiment variation, oil prices and stock market returns (variables of interest) during oil and stock market crises. Third, it uses the continuous wavelet decomposition technique since it reveals the linkage between variables of interest at different time horizons.
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