Oil Products and the Volatility Index: Bivariate Volatility Relationships Within a T-GARCH Model

28 Pages Posted: 27 May 2012

Date Written: April 15, 2012

Abstract

I provide, in this paper, evidence on the contribution of crude oil excess volatility to the volatility index. Crude oil leads the volatility index by 16 basis points (BP) 6 months ahead of time. This leadership is reversal and covers the period from January 21, 2000 to the end of 2011. The lagged and the contemporaneous effects amount to 35BP and 21BP, respectively. Moreover, I provide volatility quantities that would spill over from crude oil to refined oil products, and from crude oil to the volatility index. Based on a T-GARCH model augmented with correlation-weighted volatility ratios, I document quantities that can be useful in program trading.

Keywords: Oil Products, Volatility Spillover, Volatility Index, GARCH

JEL Classification: G13, Q40

Suggested Citation

Ben Sita, Bernard Mualuke, Oil Products and the Volatility Index: Bivariate Volatility Relationships Within a T-GARCH Model (April 15, 2012). Available at SSRN: https://ssrn.com/abstract=2065321 or http://dx.doi.org/10.2139/ssrn.2065321

Bernard Mualuke Ben Sita (Contact Author)

Lebanese American University ( email )

P.O. Box 13 - 5053
Chouran-Beirut 1102 2801
Lebanon

HOME PAGE: http://www.lau.edu.lb

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