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Structural changes and volatility transmission in crude oil markets

Sang Hoon Kang, Chongcheul Cheong and Seong-Min Yoon ()

Physica A: Statistical Mechanics and its Applications, 2011, vol. 390, issue 23, 4317-4324

Abstract: This study examines the influence of structural changes in volatility on the transmission of information in two crude oil prices. In an effort to assess the impact of these structural changes, we first identify the time points at which structural changes in volatility occurred using the ICSS algorithm, and then incorporate this information into our volatility modeling. From the estimation results using a bi-variate GARCH framework with and without structural change dummies, we find that the degree of persistence of volatility can be reduced via the incorporation of these structural changes in the volatility model. In this direction, we conclude that ignoring structural changes may distort the direction of information inflow and volatility transmission between crude oil markets.

Keywords: ICSS algorithm; Information transmission; Long memory; Persistence; Spillover effect (search for similar items in EconPapers)
Date: 2011
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