How to effectively estimate the time-varying risk spillover between crude oil and stock markets? Evidence from the expectile perspective

Yue-Jun Zhang () and Shu-Jiao Ma

Energy Economics, 2019, vol. 84, issue C

Abstract: With the integration and financialization of world economy, massive hot money has frequently flowed between crude oil and stock markets, and has brought significant extreme risks and their spillover. For this reason, this paper develops the ARCH-Expectile model with embedded Conditional AutoRegressive structure (namely CAR-ARCHE model) and expectile-based VaR (EVaR) approach, and investigates the time-varying risk spillover between WTI futures market and US, UK, Japanese and global stock markets, respectively. The results indicate that, for one thing, the EVaR approach based on CAR-ARCHE model is more adequate than the conventional quantile-based VaR (QVaR) approach based on GED-GARCH for WTI and stock markets, which is due to the evident advantages of expectile compared to quantile. For another, the unidirectional downside risk spillover effects from WTI to the four stock markets and vice-versa are only remarkable during major events and present variations with jumps, but the bidirectional downside risk spillover effects between them are significant for each time point during the in-sample period, which indicate that the simultaneous risk spillover between WTI and stock markets are fairly pronounced.

Keywords: CAR-ARCHE model; EVaR; Prudence level; Time-varying downside risk spillover effect (search for similar items in EconPapers)
JEL-codes: G15 O16 Q01 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:84:y:2019:i:c:s0140988319303573

DOI: 10.1016/j.eneco.2019.104562

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