Oil Price Risk and Financial Contagion

Khaled Guesmi, Ilyes Abid, Anna Creti and Julien Chevallier
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Ilyes Abid: autre - AUTRES
Anna Creti: LEDa - Laboratoire d'Economie de Dauphine - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres

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Abstract: In this paper we test for the existence of equity market contagion, originating from oil price fluctuations, to regional and domestic stock markets. The data are collected over the period from April 1993 to April 2015. We apply an empirical multifactor asset pricing model with three-factor setting to capture the unexpected return and disentangle simple correlation due to fundamentals and contagion. We investigate four regions: the European Monetary Union (EMU), Asia-Pacific (AP), the Non-European Monetary Union (NEMU) and North America (NA). We define contagion as the excess correlation that is not explained by fundamental factors. Oil price risk is shown to be a factor as important as contagion. In addition, oil price fluctuations amplify contagion in the context of regional markets strongly interlinked with the USA.

Keywords: Global financial crisis; financial contagion; Oil price risk; ICAPM; GJR-DCC-GARCH (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (9)

Published in Energy Journal, 2018, 39 (Special issue 2), ⟨10.5547/01956574.39.SI2.kgue⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02314038

DOI: 10.5547/01956574.39.SI2.kgue

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