Conditional Correlations and Volatility Spillovers Between Crude Oil and Stock Index Returns

Roengchai Tansuchat (), Chia-Lin Chang () and Michael McAleer

No CIRJE-F-706, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: This paper investigates the conditional correlations and volatility spillovers between crude oil returns and stock index returns. Daily returns from 2 January 1998 to 4 November 2009 of the crude oil spot, forward and futures prices from the WTI and Brent markets, and the FTSE100, NYSE, Dow Jones and S&P500 index returns, are analysed using the CCC model of Bollerslev (1990), VARMA-GARCH model of Ling and McAleer (2003), VARMAAGARCH model of McAleer, Hoti and Chan (2008), and DCC model of Engle (2002). Based on the CCC model, the estimates of conditional correlations for returns across markets are very low, and some are not statistically significant, which means the conditional shocks are correlated only in the same market and not across markets. However, the DCC estimates of the conditional correlations are always significant. This result makes it clear that the assumption of constant conditional correlations is not supported empirically. Surprisingly, the empirical results from the VARMA-GARCH and VARMA-AGARCH models provide little evidence of volatility spillovers between the crude oil and financial markets. The evidence of asymmetric effects of negative and positive shocks of equal magnitude on the conditional variances suggests that VARMA-AGARCH is superior to VARMA-GARCH and CCC.

Pages: 45pages
Date: 2010-01
New Economics Papers: this item is included in nep-ene
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Citations: View citations in EconPapers (31)

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http://www.cirje.e.u-tokyo.ac.jp/research/dp/2010/2010cf706.pdf (application/pdf)

Related works:
Journal Article: Conditional correlations and volatility spillovers between crude oil and stock index returns (2013)
Working Paper: Conditional Correlations and Volatility Spillovers Between Crude Oil and Stock Index Returns (2011)
Working Paper: Conditional Correlations and Volatility Spillovers Between Crude Oil and Stock Index Returns (2010)
Working Paper: Conditional Correlations and Volatility Spillovers Between Crude Oil and Stock Index Returns (2010)
Working Paper: Conditional Correlations and Volatility Spillovers Between Crude Oil and Stock Index Returns (2010)
Working Paper: Conditional Correlations and Volatility Spillovers Between Crude Oil and Stock Index Returns (2010)
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