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The evolution of spillover effects between oil and stock markets across multi-scales using a wavelet-based GARCH–BEKK model

Xueyong Liu, Haizhong An, Shupei Huang and Shaobo Wen

Physica A: Statistical Mechanics and its Applications, 2017, vol. 465, issue C, 374-383

Abstract: Aiming to investigate the evolution of mean and volatility spillovers between oil and stock markets in the time and frequency dimensions, we employed WTI crude oil prices, the S&P 500 (USA) index and the MICEX index (Russia) for the period Jan. 2003–Dec. 2014 as sample data. We first applied a wavelet-based GARCH–BEKK method to examine the spillover features in frequency dimension. To consider the evolution of spillover effects in time dimension at multiple-scales, we then divided the full sample period into three sub-periods, pre-crisis period, crisis period, and post-crisis period. The results indicate that spillover effects vary across wavelet scales in terms of strength and direction. By analysis the time-varying linkage, we found the different evolution features of spillover effects between the Oil-US stock market and Oil-Russia stock market. The spillover relationship between oil and US stock market is shifting to short-term while the spillover relationship between oil and Russia stock market is changing to all time scales. That result implies that the linkage between oil and US stock market is weakening in the long-term, and the linkage between oil and Russia stock market is getting close in all time scales. This may explain the phenomenon that the US stock index and the Russia stock index showed the opposite trend with the falling of oil price in the post-crisis period.

Keywords: Multi-scale; Volatility spillover; Oil price; Stock index; Wavelet; GARCH–BEKK model (search for similar items in EconPapers)
Date: 2017
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