Dynamic risk spillovers from oil to stock markets: Fresh evidence from GARCH copula quantile regression-based CoVaR model

Maoxi Tian, Muneer Alshater () and Seong-Min Yoon

Energy Economics, 2022, vol. 115, issue C

Abstract: This study proposes a GARCH copula quantile regression model to capture the downside and upside tail dependence between oil price change and stock market returns at different risk levels. In the model, ten copulas are provided to measure the nonlinearity of the tail dependence with the marginal distribution built on the GARCH family models. Using daily price data of stock markets in ten important countries and Brent oil market, we estimate the downward and upward risk spillovers from oil to stock markets. The empirical results suggest strong evidence of risk spillover effects from oil to stock markets. Furthermore, downside and upside risk spillovers from oil to the Italian and German stock markets, and the Brazilian and Russian stock markets are the largest for developed countries and emerging market countries, respectively. The US and Mexican stock markets display the smallest downside and upside risk spillovers for two types of countries. We also find evidence that the downside risk spillovers are larger than upside risk spillovers, a finding which is consistent with the flight-to-quality phenomenon. Finally, the dynamic risk spillover effects show heterogeneity over time and are comparatively different for each country. Our results provide significant implications for portfolio managers and international regulators who want to optimize their investment portfolios and maintain stock market stability.

Keywords: Risk spillover; Oil market; Stock market; CoVaR; GARCH copula quantile regression (search for similar items in EconPapers)
JEL-codes: C58 G14 G15 Q43 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:115:y:2022:i:c:s0140988322004704

DOI: 10.1016/j.eneco.2022.106341

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