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Oil and equity: too deep into each other

Natalya (Natasha) Delcoure () and Harmeet Singh ()
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Natalya (Natasha) Delcoure: TX A&M University-Kingsville
Harmeet Singh: TX A&M University-Kingsville

Journal of Economics and Finance, 2018, vol. 42, issue 1, 89-111

Abstract: Abstract The volatility in oil prices has impact far beyond its own sector. In this paper, after verifying for series stationarity and existence of cointegration, we employ DCC-GARCH multivariate model to capture the volatility spillover between oil prices, stock market, and the US economy between 2005 and June 2016. Our results show that financial assets represented by real estate, basic materials, consumer services, consumer goods, and financial sectors, but not the real output, are the major participants in volatility transmission and that the magnitude of volatility transmission changes from time of rising prices (negative volatility) to the time of falling prices (positive volatility). The empirical insights from such study are equally important for accurate asset pricing, hedging strategies, portfolio and derivatives management.

Keywords: Commodity price volatility; DCC-GARCH-GJR; Portfolio risk management; Volatility transmission; Sector interactions (search for similar items in EconPapers)
JEL-codes: G11 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:spr:jecfin:v:42:y:2018:i:1:d:10.1007_s12197-017-9387-9