Time-Varying Spillover of Multi-Scale Positive and Negative Bubbles in Stock and Oil Markets

Matteo Foglia (), Rangan Gupta (), Petre Caraiani () and Vincenzo Pacelli ()
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Matteo Foglia: Department of Economics and Finance, University of Bari Aldo Moro, Italy
Rangan Gupta: Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa
Petre Caraiani: Institute for Economic Forecasting, Romanian Academy; Bucharest University of Economics Studies
Vincenzo Pacelli: Ionian Department in ``Legal and Economic Systems of the Mediterranean: Society, Environment, Cultures", University of Bari Aldo Moro, Italy

No 202534, Working Papers from University of Pretoria, Department of Economics

Abstract: The objective of this paper is to analyze time-varying spillover between bubbles in oil and stock markets of the U.S. In this regard, we first use the Multi-Scale Log-Periodic Power Law Singularity Confidence Indicator (MS-LPPLS-CI) approach to detect both positive and negative bubbles in the short-, medium and long-term in the two markets. Then, in the second-step, we utilize a Time-Varying Parameter Vector Autoregressive (TVP-VAR) model to conduct the spillover analysis among the indexes of oil and stock positive and negative bubbles. Based on data covering the monthly period of January 1999 to June 2025, we find that negative bubble spillovers are significantly stronger and more directional than positive ones, with the U.S. equity market emerging as the transmitter to the oil market post-2008. This represents a structural shift from the traditional oil-to-equity transmission paradigm. Moreover, spillover effects are most pronounced at short- and medium-term horizons, intensifying during crisis periods. Our findings suggest that oil is increasingly behaving as a financial asset rather than a physical commodity, with important implications for portfolio diversification and risk management.

Keywords: Oil and Stock Markets; Multi-Scale Positive and Negative Bubbles; Time-Varying Spillover (search for similar items in EconPapers)
JEL-codes: C22 C32 G10 Q41 (search for similar items in EconPapers)
Pages: 13 pages
Date: 2025-09
New Economics Papers: this item is included in nep-rmg
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