Realized volatility transmission from crude oil to equity sectors: A study with economic significance analysis

Dilip Kumar

International Review of Economics & Finance, 2017, vol. 49, issue C, 149-167

Abstract: The study examines the realized volatility transmission from crude oil to various equity sectors (Automobiles, Financials, Industrial, Telecom and Pharmaceuticals) using the Heterogeneous Autoregressive Distributed Lag (HAR-DL) framework. We also consider factors representing orthogonalized realized volatility components of S&P 500 in the HAR-DL framework. The full sample analysis provides evidence of significant short-term realized volatility transmission from crude oil to the given equity sectors. The findings based on the time-varying analysis support the evidence that volatility transmission from crude oil to equity sectors is structurally unstable and exhibits structural breaks. Incorporating structural breaks in the realized volatility partially explains the structural breaks in realized volatility transmission from crude oil to equity sectors. We also examine the influence of conditional heteroskedasticity in volatility series on the measured volatility transmission and find that conditional heteroskedasticity plays a significant role in explaining the measured volatility transmission from crude oil to equity sectors. The economic significance analysis indicates that the information from crude oil market can be used to earn substantial economic gain in returns by investing in portfolios representing the given equity sectors.

Keywords: Volatility transmission; Crude oil; Equity sectors; Contagion; Realized volatility; Structural breaks (search for similar items in EconPapers)
JEL-codes: C32 C58 Q4 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1059056017300977
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:49:y:2017:i:c:p:149-167

DOI: 10.1016/j.iref.2017.01.027

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().