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Volatility Spillover between the Oil Market and Stock Market: Evidence from Oil Revenue-Dependent Countries

Syed Shabi-Ul-Hassan Orcid Logo, Taufiq Choudhry

Swansea University Author: Syed Shabi-Ul-Hassan Orcid Logo

Abstract

This paper investigates volatility transmission between oil revenue-dependent countries’ stock markets and oil price. We employed the Toda-Yamamoto causality procedure, dynamic conditional correlation (DCC) and the diagonal BEKK models to examine volatility transmissions between oil price and stock...

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URI: https://cronfa.swan.ac.uk/Record/cronfa64355
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Abstract: This paper investigates volatility transmission between oil revenue-dependent countries’ stock markets and oil price. We employed the Toda-Yamamoto causality procedure, dynamic conditional correlation (DCC) and the diagonal BEKK models to examine volatility transmissions between oil price and stock indices of these countries, disentangling the process into pre-crisis, crisis, and post-crisis periods. The outcome established the existence of volatility transmissions between oil price and the tested assets, revealing more volatility transmission during periods of pre-financial crisis. We also determine the implication of forward sales for oil revenue-dependent countries’ oil reserves. Results present a diverse range of policy suggestions for the selected countries.
Keywords: Oil price, Stock markets, Hedging, Volatility transmission
College: Faculty of Humanities and Social Sciences