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Volatility Spillover between Oil and Stock Market Returns

B. Anand, Sunil Paul () and M Ramachandran ()
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B. Anand: Department of Economics, Central University of Rajasthan

Indian Economic Review, 2014, vol. 49, issue 1, 37-56

Abstract: In the recent past, international crude oil markets have witnessed significant fluctuations and such fluctuations tend to have ramifications on the economy as a whole. In this regard, this paper makes an attempt to model such volatility spillover from oil price returns to the returns of the Indian stock market. The study also makes a comparative analysis of the volatility transmission mechanism between the periods prior to and after the eruption of the global financial crisis. The empirical analysis employs BEKK parameterization of bivariate GARCH model and various tools of continuous wavelet transform to understand the dynamics of volatility spillover between these two markets. The empirical evidence suggests that the fluctuations in the crude oil price returns exert significant impact on the volatility of stock market returns. More importantly, such volatility spillovers are found to be much stronger during the post financial crisis period and the results obtained from the wavelet analysis indicate the dominance of high frequency components in the oil-stock market relationship.

Keywords: Crude Oil; Volatility Spillover; BEKK; Continuous Wavelet Transform (search for similar items in EconPapers)
JEL-codes: C32 (search for similar items in EconPapers)
Date: 2014
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