Analyzing volatility spillovers and hedging between oil and stock markets: Evidence from wavelet analysis

Khalfaoui, Rabeh; Boutahar, Mohamed; Boubaker, Heni

doi:10.1016/j.eneco.2015.03.023

Cited by 239 publications

(105 citation statements)

References 39 publications

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“…Similar evidence was found by Ji and Fan (2012) who found that the crude oil market has significant volatility spillover effects on non-energy commodity markets and they have strengthened after the crisis. A similar result was also reported by Creti, Joëts, and Mignon (2013) who showed increased links between stock and commodity markets, and by Gomes and Chaibi (2014) who highlighted that shock and volatility spillovers tend to go more often from oil to stock markets than viceversa, see also Arouri and Nguyen (2010), Filis, Degiannakis, andFloros (2011), Kumar, Managi, andMatsuda (2012), Awartani and Maghyereh (2013) and Khalfaoui, Boutahar, and Boubaker (2015). Given this increased influence of the oil market on the other markets, regulators should consider a regulatory framework able to mitigate an oil price crash due to panic selling and/or market manipulation: a potential starting point could be the model developed by Dutt and Harris (2005), which can be used 21 to set position limits for cash-settled derivative contracts.…”

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confidence: 63%

The oil price crash in 2014/15: Was there a (negative) financial bubble?

Fantazzini

2016

Energy Policy

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This paper suggests that there was a negative bubble in oil prices in 2014/15, which decreased them beyond the level justified by economic fundamentals. This proposition is corroborated by two sets of bubble detection strategies: the first set consists of tests for financial bubbles, while the second set consists of the log-periodic power law (LPPL) model for negative financial bubbles. Despite the methodological differences between these detection methods, they provided the same outcome: the oil price experienced a statistically significant negative financial bubble in the last months of 2014 and at the beginning of 2015. These results also hold after several robustness checks which consider the effect of conditional heteroskedasticity, model set-ups with additional restrictions, longer data samples, tests with lower frequency data and with an alternative proxy variable to measure the fundamental value of oil.

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supporting

confidence: 63%

The oil price crash in 2014/15: Was there a (negative) financial bubble?

Fantazzini

2016

Energy Policy

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“…over the quantiles of the distribution and more importantly in the tails of the distribution. Although this strand has received some attention recently (see for instance, Jammazi and Reboredo, 2016;Khalfaoui et al, 2015;Nguyen and Bhatti, 2012), results are by no means conclusive.…”

Section: Conclusion and Ideas For Further Studymentioning

confidence: 99%

Oil Prices and Stock Markets: A Review of the Theory and Empirical Evidence

Degiannakis¹,

Filis²,

Arora³

2018

The Energy Journal

214

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Do oil prices and stock markets move in tandem or in opposite directions? The complex and time varying relationship between oil prices and stock markets has caught the attention of the financial press, investors, policymakers, researchers, and the general public in recent years. In light of such attention, this paper reviews research on the oil price and stock market relationship. The majority of papers we survey study the impacts of oil markets on stock markets, whereas, little research in the reverse direction exists. Our review finds that the causal effects between oil and stock markets depend heavily on whether research is performed using aggregate stock market indices, sectorial indices, or firm-level data and whether stock markets operate in net oil-importing or net oil-exporting countries. Additionally, conclusions vary depending on whether studies use symmetric or asymmetric changes in the price of oil, or whether they focus on unexpected changes in oil prices. Finally, we find that most studies show oil price volatility transmits to stock market volatility, and that including measures of stock market performance improves forecasts of oil prices and oil price volatility. Several important avenues for further research are identified.

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“…Their findings indicated that spillovers were more often observable from oil to stock markets rather than from stock markets to crude oil. Khalfaoui et al (2015) performed an econometrics analysis by combining multivariate GARCH models with wavelet multiresolution analysis. The results showed that the crude oil prices and G-7 stock markets were affected by their own volatilities and they found an indirect volatility transmission running from oil prices to stock market prices and vice versa.…”

Section: Literature Reviewmentioning

confidence: 99%

Testing the volatility spillover between crude oil price and the U.S. stock market returns

Kondoz¹,

Bora²,

Kırıkkaleli³

et al. 2019

10.5267/j.msl

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The study aims to examine the volatility transmission between the West Texas Intermediate (WTI) crude oil price returns and the U.S. stock market (S&P500 index) returns for the period 2006-2016. In the empirical analyses, univariate GARCH and multivariate GARCH (BEKK-GARCH) models are employed to investigate potential volatility spillover effect of crude oil price returns on the S&P500 index returns or vice versa. The results of GARCH methods reveal that (i) volatility spillover effect of S&P500 index returns on the crude oil returns is more significant than the volatility spillover effect of crude oil on the S&P500 index returns by using univariate GARCH model; and (ii) there is a one way volatility spillover effect that runs from S&P500 index returns to crude oil returns when we apply multivariate BEKK-GARCH model. These findings have implications for investors and oil-stock portfolio holders for their portfolio decisions in order to manage their risks on their international investments. Further, crude oil investment participants should consider the changes in U.S. stock market index returns in order to predict the expected volatility in the crude oil returns.

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Analyzing volatility spillovers and hedging between oil and stock markets: Evidence from wavelet analysis

Cited by 239 publications

References 39 publications

The oil price crash in 2014/15: Was there a (negative) financial bubble?

The oil price crash in 2014/15: Was there a (negative) financial bubble?

Oil Prices and Stock Markets: A Review of the Theory and Empirical Evidence

Testing the volatility spillover between crude oil price and the U.S. stock market returns

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