Spillover Effects between Crude Oil Returns and Uncertainty: New Evidence from Time-Frequency Domain Approaches

Kais Tissaoui (), Ilyes Abidi, Nadia Azibi and Mariem Nsaibi
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Kais Tissaoui: Management Information Systems Department, Applied College, University of Ha’il, Hail City P.O. Box 2440, Saudi Arabia
Ilyes Abidi: Management Information Systems Department, Applied College, University of Ha’il, Hail City P.O. Box 2440, Saudi Arabia
Nadia Azibi: Department of Health Management, College of Public Health and Health Informatics, University of Ha’il, Hail City P.O. Box 2440, Saudi Arabia
Mariem Nsaibi: Management Information Systems Department, Applied College, University of Ha’il, Hail City P.O. Box 2440, Saudi Arabia

Energies, 2024, vol. 17, issue 2, 1-24

Abstract: This paper examines the extent to which uncertainty in the energy market, the financial market, the commodity market, the economic policy, and the geopolitical events affect crude oil returns. To consider the complex properties of time series, such as nonlinearity, temporal variability, and unit roots, we adopt a two-instrument technique in the time–frequency domain that employs the DCC-GARCH (1.1) model and the Granger causality test in the frequency domain. This allows us to estimate the dynamic transmission of uncertainty from various sources to the oil market in the time and frequency domains. Significant dynamic conditional correlations over time are found between oil returns—commodity uncertainty, oil returns—equity market uncertainty, and oil returns—energy uncertainty. Furthermore, at each frequency, the empirical results demonstrate a significant spillover effect from the commodity, energy, and financial markets to the oil market. Additionally, we discover that sources with high persistence volatility (such as commodities, energy, and financial markets) have more interactions with the oil market than sources with low persistence volatility (economic policy and geopolitical risk events). Our findings have significant ramifications for boosting investor trust in risky energy assets.

Keywords: crude oil return; uncertainty indexes; dynamic conditional correlation; time-frequency approaches; volatility persistence (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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