New evidence of extreme risk transmission between financial stress and international crude oil markets

Yanran Hong, Pan Li, Lu Wang and Yaojie Zhang

Research in International Business and Finance, 2023, vol. 64, issue C

Abstract: We aim to analyze the risk transmission between financial stress and crude oil under different shocks, with applying a novel Granger causality test. Recent works suggest that this risk transmission is mixed, however, scholars mainly focus on their average causality but neglect the extreme causality and its time-varying characteristic. Using the weekly data of the financial stress index and WTI prices spanning from 1994 to 2020, we employ the extreme time-domain and frequency-domain Granger causality test to conduct our research. Results obtained from the time-domain test imply that their causality generally originates from extreme shocks rather than non-extreme shocks, which hasn’t been found before. For further distinguishing the long-run and short-run effects of these shocks, we apply the frequency-domain test and discover that these causalities are mainly found for long the run. Thus, investors and policy-makers may benefit from monitoring financial stress, especially under long-term extreme conditions.

Keywords: Crude oil; Financial stress index; Granger causality test; Extreme shocks; Time and frequency domains (search for similar items in EconPapers)
JEL-codes: C32 F39 G11 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:64:y:2023:i:c:s0275531922002392

DOI: 10.1016/j.ribaf.2022.101853

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