Tail risk connectedness in the oil-stock nexus: Evidence from a novel quantile spillover approach

Zhenhua Liu, Xunpeng Shi, Pengxiang Zhai, Shan Wu, Zhihua Ding and Yuqin Zhou

Resources Policy, 2021, vol. 74, issue C

Abstract: This study investigates the tail risk spillovers between the crude oil market and the stock markets of twelve major oil-importing and seven oil-exporting countries. We employ a novel quantile spillover index approach that allows measuring the dynamics and network of risk connectedness in the oil-stock nexus under different market conditions. Our results identify the risk transmitters, the risk receivers, and the evolution of the tail risk spillovers between oil market and stock markets over time. We find that extreme events will cause structural reversal of risk spillovers. Importantly, we provide evidence of heterogeneity in the cross-market risk spillovers at different quantiles, with higher risk spillovers occurring in both tails than those at the median. Among them, risk spillovers at the upside of the volatility distribution (0.95 quantile) are higher than those at the downside of the volatility distribution (0.05 quantile). Furthermore, we also document asymmetries in the risk spillovers at the upside and downside of the volatility distributions. The insights gained from this study suggest that extreme risks and close connections should be monitored, and their shocks should be mitigated by policy makers and market regulators.

Keywords: Oil market; Stock market; Tail risk; Quantiles; Spillover effects (search for similar items in EconPapers)
JEL-codes: C32 C58 E44 Q43 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (52)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:74:y:2021:i:c:s0301420721003901

DOI: 10.1016/j.resourpol.2021.102381

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