Analyzing time-varying volatility spillovers between the crude oil markets using a new method

Tangyong Liu and Xu Gong

Energy Economics, 2020, vol. 87, issue C

Abstract: The spillover effect is an important factor affecting the volatility of crude oil price. Basing on the study of Diebold and Yilmaz (2009, 2012, 2014), we propose a new method that calculates the time-varying volatility spillover indexes by the generalized forecast error variance decomposition of TVP-VAR-SV model. Then, using the new method, we study the time-varying volatility spillovers between four major crude oil markets (WTI, Brent, Oman, Tapis) from November 29, 2002 to July 13, 2018. By comparing the results of our new method and traditional rolling window method, we verify the superiority of our new method. The results show that the volatility spillovers calculated by the new method are clearer, more stable and not outlier sensitive. From the estimated results of time-varying volatility spillovers, we find that the volatility spillover between crude oil markets is slowly increasing, but there are obvious cyclical changes. And from the correlation analysis and the Granger causality test, we find that the volatility and volatility spillovers are positively correlated and are two-way Granger causality, which supported for the market infection hypothesis of King and Wadhwani (1990).

Keywords: Volatility spillovers; Time-varying; TVP-VAR-SV model; Crude oil (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (111)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:87:y:2020:i:c:s0140988320300505

DOI: 10.1016/j.eneco.2020.104711

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