RETURN AND VOLATILITY SPILLOVER BETWEEN SECTORAL STOCK AND OIL PRICE: EVIDENCE FROM PAKISTAN STOCK EXCHANGE

Muhammad Malik and Abdul Rashid ()

Annals of Financial Economics (AFE), 2017, vol. 12, issue 02, 1-22

Abstract: This paper aims to investigate the return and volatility spillover between world oil prices and the sectoral stock of Pakistan. We estimate a bivariate VAR(1)-AGARCH (1,1) model using weekly data sampled from January 1, 2001 to December 31, 2015. The model results are used to estimate the optimal portfolio weights and hedge ratios. The empirical findings suggest no short-run price transmission between world oil prices and stock sectors of Pakistan Stock Exchange. Only the past unexpected shocks in world oil prices has significant effect on the volatility of sectoral stock returns of Pakistan Stock Exchange, and no volatility spillover exist between world oil price and stock sectors. The optimal portfolio weights and hedge ratios for oil/stock holdings are sensitive to sectors considered. These findings are of great interest for policy makers, hedge fund managers, i investors and market participants.

Keywords: Pakistan stock exchange; brent; VAR-AGARCH; spillover; portfolio; hedging (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1142/S2010495217500075

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