The impact of co-jumps in the oil sector

Márcio Laurini, Roberto Mauad and Fernando Antonio Aiube ()

Research in International Business and Finance, 2020, vol. 52, issue C

Abstract: We study the dynamics of the oil sector using a new multivariate stochastic volatility model with a structure of common factors subjected to jumps in mean and conditional variance. This model contributes to the literature allowing the estimation of spillover effects between assets in a multivariate framework through joint jumps (co-jumps), identifying the permanent and transitory effects through a structure defined by Bernoulli processes. The jump structure introduced in the article can be interpreted as a regime-switching model with an endogenous number of states, avoiding the difficulties associated with models with a fixed number of regimes. We apply the model to oil prices and stock prices of integrated oil companies. The jump structure allows dating the relevant events in the oil sector in the period 2000–2019. The period analyzed encompasses important events in the oil market such as the price escalation in 2008 and the falling prices in 2014. We also apply the model to estimate risk management measures and portfolio allocation and perform a comparison with other multivariate models of conditional volatility, showing the good properties of the model in these applications.

Keywords: Oil prices; Jumps; Stochastic volatility (SV); Risk management (search for similar items in EconPapers)
JEL-codes: C11 C22 G11 Q02 Q47 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:52:y:2020:i:c:s0275531919301758

DOI: 10.1016/j.ribaf.2020.101197

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