The relationship between energy and equity markets: Evidence from volatility impulse response functions

Abstract

This paper examines the relationship between the energy and equity markets by estimating volatility impulse response functions from a multivariate BEKK model of the Goldman Sach's Energy index and the S&P 500; in addition, we also calculate the time varying conditional correlations and time varying dynamic hedge ratios. From volatility impulse response functions, we find that low S&P 500 returns cause substantial increases in the volatility of the energy index; however, we find only a weak response from S&P 500 volatility to energy price shocks. Moreover, our dynamic hedge ratio anlysis suggests that the energy index is generally a poor hedging instrument.

Research of the Relationship between Agricultural Structure and Farmers’ Income in Yunnan Province

“…The Impulse Response Function (IRF) analysis method can be used to describe the response of an endogenous variable to the impact caused by the error term, which is the degree of impact that endogenous variables on the current value and future value after impact of the standard error on the random error term [3]. Figure 1 -Figure 4 is the impulse response path curve based on the vector autoregressive model between per capita net income of farmers and the total industry value.…”

Stock markets’ bubbles burst and volatility spillovers in agricultural commodity markets

“…Previous studies have analysed volatility spillovers from stock markets to commodity markets (Haase et al, 2016 for a review); however, only few of them use VIRF and they mainly focus on energy sector (Olson et al, 2014;Le Pen and Sévi 2010;Jin et al, 2012). Conceptually, this approach is relevant since it allows to visually examine VIRF for multivariate GARCH models, highlighting how an independent shock in the economic system impacts volatility.…”

“…Some authors detect historical shocks (Le Pen and Sévi, 2010;Jin et al, 2012) whereas others compare two relevant periods (Panopoulou and Pantedlidis, 2009;Olson et al, 2014), while Hafner and Herwartz (2006) tests both the approaches. For the purpose of our analysis, we date external shocks over periods of extreme market conditions that are in correspondence of two recent strong market bubbles burst: the dot.com and 2008 financial crisis.…”

“…This process of massive increase in investments in commodities through financial instruments, known as "commodity financialization", has generated a gradual integration between commodity markets and financial markets which, in turn, has risen levels of correlation, convergence of risk-adjusted returns, and spillover volatility between markets (Karyotis and Alijani, 2016;Adams and Glück, 2015;Olson et al, 2014).…”

The Asymmetric Effects of Oil Price Shocks on the Chinese Stock Market: Evidence from a Quantile Impulse Response Perspective

“…As a barometer of the economy, the stock market's reaction is a reasonable and useful measure to reflect the impact of oil price shocks on the economy [6]. Abundant literature has investigated the link between oil price and stock markets and concludes that oil price shocks have substantial effects on stock markets [7][8][9][10][11][12][13][14][15][16][17][18][19][20][21].…”