Volatility spillovers between oil prices and the stock market under structural breaks
Document Type
Article
Source of Publication
Global Finance Journal
Publication Date
2-1-2016
Abstract
© 2015 Elsevier Inc. This paper employs univariate and bivariate GARCH models to examine the volatility of oil prices and US stock market prices incorporating structural breaks using daily data from July 1, 1996 to June 30, 2013. We endogenously detect structural breaks using an iterated algorithm and incorporate this information in GARCH models to correctly estimate the volatility dynamics. We find no volatility spillover between oil prices and US stock market when structural breaks in variance are ignored in the model. However, after accounting for structural breaks in the model, we find strong volatility spillover between the two markets. We compute optimal portfolio weights and dynamic risk minimizing hedge ratios to highlight the significance of our empirical results which underscores the serious consequences of ignoring these structural breaks. Our findings are consistent with the notion of cross-market hedging and sharing of common information by financial market participants in these markets.
DOI Link
ISSN
Publisher
Elsevier
Volume
29
First Page
12
Last Page
23
Disciplines
Business
Keywords
GARCH, Oil volatility, Stock market volatility, Structural breaks, Volatility spillover
Scopus ID
Recommended Citation
Ewing, Bradley T. and Malik, Farooq, "Volatility spillovers between oil prices and the stock market under structural breaks" (2016). All Works. 3928.
https://zuscholars.zu.ac.ae/works/3928
Indexed in Scopus
yes
Open Access
no