Time-Varying Correlation Between Oil and Stock Market Volatilities: Evidence From Oil-Importing and Oil-Exporting Countries
MPRA Paper No. 80435
36 Pages Posted: 26 Oct 2018
Date Written: 2017
This paper investigates the time-varying conditional correlation between oil price and stock market volatility for six major oil-importing and oil-exporting countries. The period of the study runs from January 2000 until December 2014 and a Diag-BEKK model is employed. Our findings report the following regularities. (i) The correlation between the oil and stock market volatilities changes over time fluctuating at both positive and negative values. (ii). Heterogeneous patterns in the time-varying correlations are evident between the oil-importing and oil-exporting countries. (iii) Correlations are responsive to major economic and geopolitical events, such as the early-2000 recession, the 9/11 terrorist attacks and the global financial crisis of 2007-2009. These findings are important for risk management practices, derivative pricing and portfolio rebalancing.
Keywords: Conditional Volatility, Realized Volatility, Time-Varying Correlation, Diag-BEKK, GARCH, Oil-Importing Countries, Oil-Exporting Countries
JEL Classification: C32, C51, G15, Q40
Suggested Citation: Suggested Citation