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Jump spillover between oil prices and exchange rates

Xiao-Ping Li, Chun-Yang Zhou and Chong-Feng Wu

Physica A: Statistical Mechanics and its Applications, 2017, vol. 486, issue C, 656-667

Abstract: In this paper, we investigate the jump spillover effects between oil prices and exchange rates. To identify the latent historical jumps for exchange rates and oil prices, we use a Bayesian MCMC approach to estimate the stochastic volatility model with correlated jumps in both returns and volatilities for each. We examine the simultaneous jump intensities and the conditional jump spillover probabilities between oil prices and exchange rates, finding strong evidence of jump spillover effects. Further analysis shows that the jump spillovers are mainly due to exogenous events such as financial crises and geopolitical events. Thus, the findings have important implications for financial risk management.

Keywords: Jump spillover; Oil; Exchange rates; SVCJ model; Event risk (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:eee:phsmap:v:486:y:2017:i:c:p:656-667