Shock and volatility spillovers between oil and emerging seven stock markets

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Muzammil Khurshid ◽  
Berna Kirkulak-Uludag
Keyword(s):  
Stock Returns ◽  
Stock Markets ◽  
Design Methodology ◽  
Spillover Effects ◽  
Volatility Spillover ◽  
Causality Test ◽  
Content Type ◽  
Volatility Spillovers ◽  
Oil Market ◽  
High Level

Purpose This study aims to examine the volatility spillover effects between oil and stock returns in the emerging seven economies. Design/methodology/approach In this study, the Granger causality test and vector autoregression-generalized autoregressive conditional heteroskedasticity approach to analyze the volatility spillover from 1995 to 2019 were used. The findings provide evidence of significant volatility spillover between oil and Brazil, China, India, Indonesia, Mexico, Russia and Turkey (E7) stock markets. Findings All emerging seven stock markets exhibit positive and low constant conditional correlations with oil assets. The magnitude of the correlation changes in respond to the country’s net position in the crude oil market. While a relatively high level of correlation exists between oil and the stock markets of net oil-exporting countries, a relatively low level of correlation exists between oil and the stock markets of net oil-importing countries. Originality/value The findings suggest that oil asset improves the risk-adjusted performance of a well-diversified portfolio of stocks. However, investors should invest a larger portion of their portfolios in E7 stock markets than in oil.

Volatility spillovers among G7, E7 stock markets and cryptocurrencies

2022 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Berna Aydoğan ◽  
Gülin Vardar ◽  
Caner Taçoğlu
Keyword(s):  
Financial Market ◽  
Portfolio Management ◽  
Stock Markets ◽  
Negative Impact ◽  
Spillover Effects ◽  
Volatility Spillover ◽  
Content Type ◽  
Volatility Spillovers ◽  
Dynamic Relationship ◽  
The Stability

PurposeThe existence of long memory and persistent volatility characteristics of cryptocurrencies justifies the investigation of return and volatility/shock spillovers between traditional financial market asset classes and cryptocurrencies. The purpose of this paper is to investigate the dynamic relationship between the cryptocurrencies, namely Bitcoin and Ethereum, and stock market indices of G7 and E7 countries to analyze the return and volatility spillover patterns among these markets by means of multivariate (MGARCH) approach.Design/methodology/approachApplying the newly developed VAR-GARCH-in mean framework with the BEKK representation, the empirical results reveal that there exists an evidence of mean and volatility spillover effects among Bitcoin and Ethereum as the proxies for the cryptocurrencies, and stock markets reviewed.FindingsInterestingly, the direction of the return and volatility spillover effects is unidirectional in most E7 countries, but bidirectional relationship was found in most G7 countries. This can be explained as the presence of a strong return and volatility interaction among G7 stock markets and crypto market.Originality/valueOverall, the results of this study are of particular interest for portfolio management since it provides insights for financial market participants to make better portfolio allocation decisions. It is also increasingly important to understand the volatility transmission mechanism across these markets to provide policymakers and regulatory bodies with guidance to eliminate the negative impact of cryptocurrency's volatility on the stability of financial markets.

scholarly journals To What Extent are Stock Returns Driven by Mean and Volatility Spillover Effects? – Evidence from Eight European Stock Markets

2013 ◽  
Vol 13 (1) ◽  
pp. 3-29 ◽  
Author(s):  
Abdulla Alikhanov
Keyword(s):  
Stock Returns ◽  
Stock Markets ◽  
Spillover Effects ◽  
Volatility Spillover ◽  
Volatility Spillovers ◽  
The Us ◽  
Variance Ratios ◽  
Market Shocks ◽  
European Stock Markets ◽  
The U.S

Abstract The paper investigates mean and volatility spillover effects from the U.S and EU stock markets as well as oil price market into national stock markets of eight European countries. The study finds strong indication of volatility spillover effects from the US-global, EU-regional, and the world factor oil towards individual stock markets. While both mean and volatility spillover transmissions from the US are found to be significant, EU mean spillover effects are negligible. To evaluate the magnitude of volatility spillovers, the variance ratios are also computed and the results draw to attention that the individual emerging countries’ stock returns are mostly influenced by the U.S volatility spillovers rather than EU or oil markets. Additionally, examination of only global and regional stock markets spillover transmissions into European stock markets also confirms the dominating presence of the U.S spillover transmissions. Furthermore, I also implement asymmetric tests on stock returns of eight markets. The stock market returns of Hungary, Poland, Russia and the Ukraine are found to respond asymmetrically to negative and positive shocks in the US stock returns. The weak evidence of asymmetric effects with respect to oil market shocks is found only in the case of Russia and the quantified variance ratios indicate that presence of oil market shocks are relatively higher for Russia. Moreover, a model with dummy variable confirms the effect of European Union enlargement on stock returns only for Romania. Finally, a conditional model suggests that the spillover effects are partially explained by instrumental macroeconomic variables, out of which exchange rate fluctuations play the key role in explaining the spillover parameters rather than total trade to GDP ratios in most investigated countries.

scholarly journals An analysis of CEE equity market integration and their volatility spillover effects

2019 ◽  
Vol 29 (1) ◽  
pp. 23-40 ◽  
Author(s):  
Ngo Thai Hung
Keyword(s):  
Market Integration ◽  
Design Methodology ◽  
Spillover Effects ◽  
Equity Market ◽  
Multivariate Garch ◽  
The Czech Republic ◽  
Content Type ◽  
Volatility Spillovers ◽  
Conditional Correlations ◽  
Practical Implications

Purpose The purpose of this paper is to examine the conditional correlations and spillovers of volatilities across CEE markets, namely, Hungary, Poland, the Czech Republic, Romania and Croatia, in the post-2007 financial crisis period. Design/methodology/approach The authors use five-dimensional GARCH-BEKK alongside with the CCC and DCC models. Findings The estimation results of the three models generally demonstrate that the correlations between these markets are particularly significant. Also, own-volatility spillovers are generally lower than cross-volatility spillovers for all markets. Practical implications These results recommend that investors should take caution when investing in the CEE equity markets as well as diversifying their portfolios so as to minimize risk. Originality/value Unlike the previous studies in this field, this paper is the first study using multivariate GARCH-BEKK alongside with CCC and DCC models. The study makes an outstanding contribution to the existing literature on spillover effects and conditional correlations in the CEE financial stock markets.

Nexus between Southeast Asian stock markets, bitcoin and gold: spillover effect before and during the COVID-19 pandemic

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Yosuke Kakinuma
Keyword(s):  
Southeast Asia ◽  
Stock Markets ◽  
Spillover Effect ◽  
Spillover Effects ◽  
Southeast Asian ◽  
Series Data ◽  
Financial Assets ◽  
Volatility Spillover ◽  
Content Type ◽  
Asset Classes

Purpose This study aims to provide empirical evidence on the return and volatility spillover effects between Southeast Asian stock markets, bitcoin and gold in the periods before and during the COVID-19 pandemic. The interdependence among different asset classes, the two leading stock markets in Southeast Asia (Singapore and Thailand), bitcoin and gold, is analyzed for diversification opportunities. Design/methodology/approach The vector autoregressive-Baba, Engle, Kraft, and Kroner-generalized autoregressive conditional heteroskedasticity model is used to capture the return and volatility spillover effects between different financial assets. The data cover the period from October 2013 to May 2021. The full period is divided into two sub-sample periods, the pre-pandemic period and the during-pandemic period, to examine whether the financial turbulence caused by COVID-19 affects the interconnectedness between the assets. Findings The stocks in Southeast Asia, bitcoin and gold become more interdependent during the pandemic. During turbulent times, the contagion effect is inevitable regardless of region and asset class. Furthermore, bitcoin does not provide protection for investors in Southeast Asia. The pricing mechanism and technology behind bitcoin are different from common stocks, yet the results indicate the co-movement of bitcoin and the Singaporean and Thai stocks during the crisis. Finally, risk-averse investors should ensure that gold constitutes a significant proportion of their portfolio, approximately 40%–55%. This strategy provides the most effective hedge against risk. Originality/value The mean return and volatility spillover is analyzed between bitcoin, gold and two preeminent stock markets in Southeast Asia. Most prior studies test the spillover effect between the same asset classes such as equities in different regions or different commodities, currencies and cryptocurrencies. Moreover, the time-series data are divided into two groups based on the structural break caused by the COVID-19 pandemic. The findings of this study offer practical implications for risk management and portfolio diversification. Diversification opportunities are becoming scarce as different financial assets witness increasing integration.

Returns and volatility spillovers among cryptocurrency portfolios

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ismail Olaleke Fasanya ◽  
Oluwatomisin Oyewole ◽  
Temitope Odudu
Keyword(s):  
Design Methodology ◽  
Asset Returns ◽  
Volatility Spillover ◽  
Content Type ◽  
Vector Autoregressive ◽  
Volatility Spillovers ◽  
Dynamic Relationship ◽  
Major Market ◽  
Daily Data ◽  
Variance Decompositions

PurposeThis paper examines the return and volatility spillovers among major cryptocurrency using daily data from 10/08/2015 to 15/04/2018.Design/methodology/approachThe authors employ the Dielbold and Yilmaz (2012) spillover approach and rolling sample analysis to capture the inherent secular and cyclical movements in the cryptocurrency market.FindingsThe authors show that there is substantial difference between the behaviour of the cryptocurrency portfolios return and volatility spillover indices over time. The authors find evidence of interdependence among cryptocurrency portfolios given the spillover indices. While the return spillover index reveals increased integration among the currency portfolios, the volatility spillover index experiences significant bursts during major market crises. Interestingly, return and volatility spillovers exhibit both trends and bursts respectively.Originality/valueThis study makes a methodological contribution by adopting Dielbold and Yilmaz (2012) approach to quantify the returns and volatility transmissions among cryptocurrencies. To the best of our knowledge, little or no study has adopted the Dielbold and Yilmaz (2012) methodology to investigate this dynamic relationship in the cryptocurrencies market. The Dielbold and Yilmaz (2012) approach provides a simple and intuitive measure of interdependence of asset returns and volatilities by exploiting the generalized vector autoregressive framework, which produces variance decompositions that are unaffected by ordering.

The dynamics of return co-movements and volatility spillover effects in Greater China public property markets and international linkages

2014 ◽  
Vol 32 (6) ◽  
pp. 610-641 ◽  
Author(s):  
Kim Hiang Liow
Keyword(s):  
Real Estate ◽  
Spillover Effects ◽  
Real Estate Market ◽  
Market Volatility ◽  
Volatility Spillover ◽  
Content Type ◽  
Real Estate Markets ◽  
Volatility Spillovers ◽  
Public Property ◽  
Property Markets

Purpose – The purpose of this paper is to examine weekly dynamic conditional correlations (DCC) and vector autoregressive (VAR)-based volatility spillover effects within the three Greater China (GC) public property markets, as well as across the GC property markets, three Asian emerging markets and two developed markets of the USA and Japan over the period from January 1999 through December 2013. Design/methodology/approach – First, the author employ the DCC methodology proposed by Engle (2002) to examine the time-varying nature in return co-movements among the public property markets. Second, the author appeal to the generalized VAR methodology, variance decomposition and the generalized spillover index of Diebold and Yilmaz (2012) to investigate the volatility spillover effects across the real estate markets. Finally, the spillover framework is able to combine with recent developments in time series econometrics to provide a comprehensive analysis of the dynamic volatility co-movements regionally and globally. The author also examine whether there are volatility spillover regimes, as well as explore the relationship between the volatility spillover cycles and the correlation spillover cycles. Findings – Results indicate moderate return co-movements and volatility spillover effects within and across the GC region. Cross-market volatility spillovers are bidirectional with the highest spillovers occur during the global financial crisis (GFC) period. Comparatively, the Chinese public property market's volatility is more exogenous and less influenced by other markets. The volatility spillover effects are subject to regime switching with two structural breaks detected for the five sub-groups of markets examined. There is evidence of significant dependence between the volatility spillover cycles across stock and public real estate, due to the presence of unobserved common shocks. Research limitations/implications – Because international investors incorporate into their portfolio allocation not only the long-term price relationship but also the short-term market volatility interaction and return correlation structure, the results of this study can shed more light on the extent to which investors can benefit from regional and international diversification in the long run and short-term within and across the GC securitized property sector, with Asian emerging market and global developed markets of Japan and USA. Although it is beyond the scope of this paper, it would be interesting to examine how the two co-movement measures (volatility spillovers and correlation spillovers) can be combined in optimal covariance forecasting in global investing that includes stock and public real estate markets. Originality/value – This is one of very few papers that comprehensively analyze the dynamic return correlations and conditional volatility spillover effects among the three GC public property markets, as well as with their selected emerging and developed partners over the last decade and during the GFC period, which is the main contribution of the study. The specific contribution is to characterize and measure cross-public real estate market volatility transmission in asset pricing through estimates of several conditional “volatility spillover” indices. In this case, a volatility spillover index is defined as share of total return variability in one public real estate market attributable to volatility surprises in another public real estate market.

Return and volatility spillovers between Bitcoin and other asset classes in Turkey

2019 ◽  
Vol 14 (3) ◽  
pp. 209-220 ◽  
Author(s):  
Gulin Vardar ◽  
Berna Aydogan
Keyword(s):  
Spillover Effects ◽  
Portfolio Diversification ◽  
Volatility Spillover ◽  
Policy Makers ◽  
Content Type ◽  
Empirical Results ◽  
Volatility Spillovers ◽  
Regulatory Bodies ◽  
Asset Classes ◽  
Econometric Technique

Purpose With a substantial return and volatility characteristic of Bitcoin, which may be seen as a new category of investment assets, better understanding of the nature of return and volatility spillover can help investors and regulators in achieving the potential goal from portfolio diversification. The paper aims to discuss these issues. Design/methodology/approach This paper explores the return and volatility transmission between the Bitcoin, as the largest cryptocurrency, and other traditional asset classes, namely stock, bond and currencies from the standpoint of Turkey over the period July, 2010–June, 2018 using the newly developed multivariate econometric technique, VAR–GARCH, in mean framework with the BEKK representation. Findings The empirical results reveal the existence of the positive unilateral return spillovers from the bond market to Bitcoin market. Regarding the results of shock and volatility spillovers, there exists strong evidence of bidirectional cross-market shock and volatility spillover effects between Bitcoin and all other financial asset classes, except US Dollar exchange rate. Originality/value The important extention is the adoption of a newly developed multivariate econometric technique, VAR–GARCH, in mean framework with the BEKK representation, proposed by Engle and Kroner (1995), which is employed for the first time specifically to examine the extent of integration in terms of volatility and return between Bitcoin and key asset classes. Second, Bitcoin has experienced a rapid growth since around a decade and a number of investors are showing interest in its potential as an integrative part of portfolio diversification. The information provided by empirical results gives empirical bases from which to address topics concerning hedging purposes and optimal portfolio allocation. It is also increasingly important to analyze the current behavior of Bitcoin in relation to other assets to provide policy makers and regulatory bodies with guidance on the role of the Bitcoin as an investment asset in Turkey. Thus, this is the first serious attempt at exploring the potential for Bitcoin to offer diversification opportunities in the context of Turkey.

An empirical analysis of stock market interdependence and volatility spillover in the stock markets of Africa and Middle East region

2019 ◽  
Vol 10 (3) ◽  
pp. 314-335 ◽  
Author(s):  
Ajaya Kumar Panda ◽  
Swagatika Nanda ◽  
Rashmi Ranjan Paital
Keyword(s):  
Middle East ◽  
Stock Market ◽  
Stock Markets ◽  
Volatility Spillover ◽  
Causality Test ◽  
Content Type ◽  
East Region ◽  
Long Run ◽  
International Investors ◽  
Middle East Region

Purpose The purpose of this paper is to examine the short-term and long-term interdependence among the stock markets of Africa and Middle East region. It also attempts to analyze the pattern of volatility spillover among the regional stock markets. Design/methodology/approach The study has used Granger causality test, variance decomposition test of vector auto-regression (VAR) model, vector error correction model (VECM), multivariate generalized conditional heteroskedasticity (MGARCH-BEKK) models and Johansen and Juselius multivariate cointegration techniques. Findings The study finds that the interlinkages of the stock markets are not uniform across all the countries of the region. The stock market of Israel, South Africa and Jordan are found to be highly connected stock market of the region followed by Egypt and Botswana. The study also finds significant spillover of lagged standardized volatility across the stock markets of the region. But the magnitude of the response of volatility spillover and its persistence is very minimum. However, the stock markets are found to be co-integrated and expected to share long-run equilibrium relationships among each other. Research limitations/implications The study has the scope to be extended to capture the time-varying integration of market returns with transmission of monetary policy and exchange rate changes within the region. The results obtained from this study may assist the firm managers and international investors to understand the key drivers of market connectedness. Originality/value Empirically investigating the pattern of stock market connectedness in Africa and Middle East region with advanced methodology over a long study period is the originality of this study.

The spillover effects of economic policy uncertainty on financial markets: a time-varying analysis

2020 ◽  
Vol 37 (3) ◽  
pp. 513-543 ◽  
Author(s):  
Canh Phuc Nguyen ◽  
Thanh Dinh Su ◽  
Udomsak Wongchoti ◽  
Christophe Schinckus
Keyword(s):  
Stock Returns ◽  
Stock Markets ◽  
Spillover Effects ◽  
Policy Uncertainty ◽  
Content Type ◽  
Economic Policy Uncertainty ◽  
Bear Market ◽  
The Usa ◽  
Negative Impacts ◽  
The Uk

Purpose This study aims to examine the spillover effects of trans-Atlantic macroeconomic uncertainties on the local stock market returns in the USA and eight selected European countries, namely, Germany, France, Spain, Italy, Greece, Ireland, Sweden and the UK, during the 2000-2019 period. Design/methodology/approach This paper applies the dynamic conditional correlation multivariate GARCH model (i.e. multivariate generalized autoregressive conditional heteroskedasticity model or DCC MGARCH) to examine the potential existence of the spillover from the uncertainty of the USA to EU stock markets and vice versa. To capture different dynamic relationships between multiple time-series variables following different regimes, this paper applies the Markov switching model to the stock returns of both the USA and the eight major stock markets. Findings The increases in US uncertainty have significant negative impacts on all EU stock returns, whereas only the increases in the uncertainties of Spain, Ireland, Sweden and the UK have significant negative impacts on US stock returns. Notably, the economic policy uncertainty (EPU) in the USA has a dynamic effect on the European stock markets. In a bear market (State 1), the increases in the EPU of the USA and EU have significant negative impacts on EU stock returns in most cases. However, only the increase in US EPU has significant negative impacts on EU stock returns in bull markets (State 2). Reciprocally, the increases in the EU EPUs of Germany, Spain and the UK have significant impacts on US stock returns in bear market. Originality/value The observations challenge the conventional wisdom according to which only larger economies can lead the smaller counterparts. The findings also highlight the stronger dependence of the US stock market on international macroeconomic uncertainty.

Asymmetric impact of shocks on Islamic stock indices: a cross country analysis

2019 ◽  
Vol 10 (1) ◽  
pp. 2-86 ◽  
Author(s):  
Anum Fatima ◽  
Abdul Rashid ◽  
Atiq-uz-Zafar Khan
Keyword(s):  
Stock Returns ◽  
Empirical Analysis ◽  
Spillover Effects ◽  
Policy Implications ◽  
Bad News ◽  
Volatility Spillover ◽  
Content Type ◽  
Asymmetric Effects ◽  
Stock Indices ◽  
Asymmetric Impact

PurposeSeveral studies focus on asymmetric impact of shocks on conventional stocks. However, only few studies explore Islamic stocks, but none has examined the asymmetric impact of shocks on Islamic stocks. This study aims to fill the gap by investigating the asymmetric impact of shocks on Islamic stocks. Specifically, it identifies the effect of good and bad news on Islamic stock market. The study also aims to examine the returns and volatility spillover effects across different Islamic markets.Design/methodology/approachTo carry out the empirical analysis, the authors have applied the exponential generalized autoregressive conditional heteroscedasticity (ARCH) model on daily Islamic stock indices of 18 countries. The study covers the period from July 2009 to July 2016. The authors have started their empirical analysis by examining the time series properties and testing the presence of ARCH effects. Further, the authors have applied several post-estimation tests to ensure the robustness of the results.FindingsThe results indicate that there is significant leverage effect in Islamic stocks traded in the sampled countries. That is, negative shocks or bad news have stronger effects on Islamic stock returns’ volatility as compared to positive shocks or good news. The authors also found that there are significant mean spillover effects for the examined countries. This finding implies that increased Islamic stock returns in country have significant and positive effects in Islamic stocks’ returns in another other. Similarly, the results regarding the volatility spillover effects suggest that there are significant volatility spillover effects across all examined countries. However, the authors found both positive and negative volatility spillover effects. It should also be noted that in some cases, the authors did not find any significant volatility spillover effect.Practical implicationsThe findings of this study have several important policy implications for both investors and policymakers. As the findings suggest that Islamic stock indices are integrated across countries both in terms of returns (mean) and risk (volatility), they are useful for investors to design well-diversified portfolios. The significant volatility spillovers suggest policymakers to design such policy that may help in reducing the adverse effects of increased volatility of Islamic stock of other/foreign countries on the Islamic stocks of the home countries. The significant evidence of the presence of leverage (asymmetric) effects suggest investors to use effective and active hedging instruments to hedge risk, particularly, in bad times.Originality/valueUnlike other studies on Islamic stocks, this study takes into account the asymmetric effects of positive and negative shocks. Further, the study examines the mean and variance spillover effects for a large panel of countries having Islamic stocks. Finally, several pre- and post-estimation tests are applied to ensure the robustness of the results.

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