Economics at your fingertips  

Time-varying correlations in oil, gas and CO 2 prices: an application using BEKK, CCC and DCC-MGARCH models

Julien Chevallier

Applied Economics, 2012, vol. 44, issue 32, 4257-4274

Abstract: Previous literature has identified oil and gas prices as being the main drivers of CO 2 prices in a univariate Generalized Autoregressive Conditional Heteroscedasticity (GARCH) econometric framework (Alberola et al ., 2008; Oberndorfer, 2009). By contrast, we argue in this article that the interrelationships between energy and emissions markets shall be modelled in a Vector Autoregressive (VAR) and Multivariate GARCH (MGARCH) framework, so as to reflect the dynamics of the correlations between the oil, gas and CO 2 variables overtime. Using the Baba--Engle--Kraft--Kroner (BEKK), Constant Conditional Correlation (CCC) and Dynamic Conditional Correlation MGARCH (DCC-MGARCH) models on daily data from April 2005 to December 2008, we highlight significant own-volatility, cross-volatility spillovers, and own persistent volatility effects for nearly all markets, indicating the presence of strong Autoregressive Conditional Heteroscedasticity (ARCH) and GARCH effects. Besides, we provide strong empirical evidence of time-varying correlations in the range of [−0.3; 0.3] between oil and gas, [−0.05; 0.05] between oil and CO 2 , and [−0.2; 0.2] between gas and CO 2 , that have not been considered by previous studies. These findings are of interest for traders and utilities in the energy sector, but also for a broader applied economics audience.

Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

Downloads: (external link) (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Time-varying correlations in oil, gas and CO2 prices: an application using BEKK, CCC, and DCC-MGARCH models (2011) Downloads
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:

Ordering information: This journal article can be ordered from

Access Statistics for this article

Applied Economics is currently edited by Anita Phillips

More articles in Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().

Page updated 2019-11-24
Handle: RePEc:taf:applec:44:y:2012:i:32:p:4257-4274