VOLATILITY SPILLOVER BETWEEN SPOT AND FUTURES MARKET OF HIGHLY TRADED COMMODITIES IN INDIA: The DCC-GARCH Approach

2018 ◽  
Vol 05 (09) ◽  
pp. 34-49
Author(s):  
Ruchika Kaura ◽  
Nawal Kishor ◽  
Namita Rajput
Keyword(s):  
Spillover Effect ◽  
Spillover Effects ◽  
Futures Market ◽  
Market Volatility ◽  
Multivariate Garch ◽  
Management Policy ◽  
Commodity Market ◽  
Time Varying ◽  
Volatility Spillover ◽  
Conditional Correlation

This study intends to examine the volatility spillover effects and measure the time-varying correlations between futures and spot prices of thirteen highly traded commodities traded on Multi Commodity Exchange (MCX) of India. The research uses Exponential GARCH proposed by Nelson (1991) to explore the direction and magnitude of spillover effects between futures and spot commodity market and employs Dynamic Conditional Correlation (DCC) GARCH proposed by Engle (2002) to demonstrate the time varying conditional correlation between heteroscedastic coefficients of the futures and spot markets. Empirical results show that significant and asymmetric bi-directional volatility spillover effects exist in case of most of the selected commodities, even though, the magnitude of volatility spillover is found larger in the direction from futures market to spot market. The dynamic correlation between the conditional variance of the spot and future markets is found to be significant in case of all the commodities except Silver and Copper. It proves that significant volatility spillover effect is present between spot and futures markets of selected commodities. Understanding of volatility transmission and interrelationship between spot and futures commodity market will help investors make right investment decisions, portfolio optimization and financial risk management. Policy makers and regulators can use this knowledge in planning and implementing appropriate regulatory framework. Much of the earlier research focuses on inter market volatility spillover taking into consideration two or more different financial markets. This study focuses on intra market volatility spillover by studying the interactions of spot-futures prices of commodities. Also, considering the time-varying nature of conditional correlations, this study employs EGARCH and multivariate GARCH (DCC) to capture the volatility spillover effects instead of univariate GARCH or standard linear VAR models.

scholarly journals Emerging Markets and Volatility Spillover Effects: Empirical Evidence from Regional Emerging Economies of Pakistan, China, India, and Bangladesh

2020 ◽  
Vol V (I) ◽  
pp. 102-116
Author(s):  
Kashif Hamid ◽  
Muhammad Mudasar Ghafoor ◽  
Muhammad Yasir Saeed
Keyword(s):  
Emerging Markets ◽  
Empirical Evidence ◽  
Emerging Economies ◽  
Financial Economics ◽  
Spillover Effect ◽  
Spillover Effects ◽  
Multivariate Garch ◽  
Volatility Spillover ◽  
Significant Evidence ◽  
The Impact

Emerging markets and volatility spillover effects remained a highly focused area in the field of financial economics. Therefore, we have empirically testified the volatility spillover effects between markets of emerging economies i.e Pakistan, China, Bangladesh, and India during the period from 1st January 2000 to 31st December 2015. We used Multivariate GARCH and causality models to identify the spillover effects. It is concluded that there exists significant evidence of spillover effect from the market of Pakistan to India, India to China and from China to Pakistan. However, the larger negative shift in the volatility occurs more frequently than positive shocks. Hence it is concluded that the impact of own spillovers of the markets is much higher than the impact of cross-market spillovers during this period.

Volatility Spillover between the KOSPI 200 Spot and Futures Markets Using the VECM-DCC-GARCH Model

2011 ◽  
Vol 19 (3) ◽  
pp. 233-249
Author(s):  
Sang Hoon Kang ◽  
Seong-Min Yoon
Keyword(s):  
Information Flow ◽  
Futures Markets ◽  
Price Discovery ◽  
Spillover Effects ◽  
Spot Market ◽  
Futures Market ◽  
Market Volatility ◽  
Futures Contracts ◽  
Volatility Spillover ◽  
Asymmetric Volatility

This paper investigates the price discovery, volatility spillover, and asymmetric volatility spillover effects between the KOSPI 200 market and its futures contracts market. The investigation was performed using the VECM-DCC-GARCH approach. In the case of returns, we found a significant unidirectional information flow from the futures market to the spot market; this implies that the KOSPI 200 futures market plays an important role on the price discovery in the spot market. In addition, we found a strong bi-directional casualty involving the volatility interaction between the spot and futures markets; this implies that market volatility originating in the spot market will influence the volatility of the futures market and vice versa. We also found strong asymmetric volatility spillover effects between the two markets.

scholarly journals Financial Contagion in EFA Markets in Crisis Periods: A Multivariate GARCH Dynamic Conditional Correlation Framework

2016 ◽  
Vol 21 (2) ◽  
pp. 121-151
Author(s):  
Mobeen Ur Rehman
Keyword(s):  
Financial Crises ◽  
Spillover Effects ◽  
Multivariate Garch ◽  
Financial Contagion ◽  
Time Varying ◽  
Conditional Correlation ◽  
Dynamic Conditional Correlation ◽  
Developed Markets ◽  
The Us ◽  
The 2008 Financial Crisis

This paper uses the multivariate GARCH dynamic conditional correlation framework proposed by Engle (2002) to investigate time-varying conditional correlation between developed markets and emerging and frontier Asian (EFA) markets. It employs monthly returns data for 2000–14 to capture the potential contagion in developed (the US, Europe and Japan) and EFA stock markets. A key finding is the increasing conditional correlation among EFA and developed markets, especially during the 2008 financial crisis. The study finds that, during periods of financial turmoil, EFA markets are exposed to shocks and spillover effects from developed markets along with a substantial shift in the regime of conditional correlation. This has important implications for investors interested in diversifying portfolios in EFA markets during financial crises.

scholarly journals Volatility spillover and contagion effects between EURODOLLAR future and zero coupons markets: Evidence from Italy

2020 ◽  
Vol 17 (2) ◽  
pp. 67-88
Author(s):  
Konstantinos Tsiaras
Keyword(s):  
Futures Market ◽  
Time Varying ◽  
Volatility Spillover ◽  
Conditional Correlation ◽  
Dynamic Conditional Correlation ◽  
Contagion Effects ◽  
Eurodollar Futures ◽  
Bivariate Models ◽  
Investigation Period ◽  
Derivative Markets

This paper examines the time-varying conditional correlations between the Eurodollar futures market and the zero coupons of Banca Fideuram. We apply a bivariate dynamic conditional correlation (DCC) GARCH model in order to capture potential contagion effects between the markets for the period 2005-2017. Empirical results reveal contagion during the under-investigation period regarding the twenty-one bivariate models, showing that the Eurodollar futures market has a major impact on the zero coupons of Banca Fideuram. Findings have crucial implications for policymakers who provide regulations for the above-mentioned derivative markets.

scholarly journals Empirical Evidence on Time-Varying Hedging Effectiveness of Emissions Allowances under Departures from the Cost-of-Carry Theory

2013 ◽  
Vol 2013 ◽  
pp. 1-8 ◽  
Author(s):  
Kai Chang
Keyword(s):  
Futures Market ◽  
Time Varying ◽  
Conditional Volatility ◽  
Conditional Correlation ◽  
Spot Prices ◽  
Market Participants ◽  
Hedging Effectiveness ◽  
Hedge Ratios ◽  
Cost Of Carry ◽  
The Cost

Under departures from the cost-of-carry theory, traded spot prices and conditional volatility disturbed from futures market have significant impacts on futures price of emissions allowances, and then we propose time-varying hedge ratios and hedging effectiveness estimation using ECM-GARCH model. Our empirical results show that conditional variance, conditional covariance, and their correlation between between spot and futures prices exhibit time-varying trends. Conditional volatility of spot prices, conditional volatility disturbed from futures market, and conditional correlation of market noises implied from spot and futures markets have significant effects on time-varying hedge ratios and hedging effectiveness. In the immature emissions allowances market, market participants optimize portfolio sizes between spot and futures assets using historical market information and then achieve higher risk reduction of assets portfolio revenues; accordingly, we can obtain better hedging effectiveness through time-varying hedge ratios with departures from the cost-of-carry theory.

Internet gambling stock returns: empirical evidence from the UK

2017 ◽  
Vol 13 (1) ◽  
pp. 36-49
Author(s):  
Daniel Perez Liston
Keyword(s):  
Stock Returns ◽  
Multivariate Garch ◽  
Online Gambling ◽  
Future Research ◽  
Time Varying ◽  
Conditional Correlation ◽  
Socially Responsible ◽  
Content Type ◽  
Starting Point ◽  
The Uk

Purpose The purpose of this paper is to quantify beta for an online gambling portfolio in the UK and investigates whether it is time-varying. It also examines the dynamic correlations of the online gambling portfolio with both the market and socially responsible portfolios. In addition, this paper documents the effect of important UK gambling legislation on the betas and correlations of the online gambling portfolio. Design/methodology/approach This study uses static and time-varying models (e.g. rolling regressions, multivariate GARCH models) to estimate betas and correlations for a portfolio of UK online gambling stocks. Findings This study finds that beta for the online gambling portfolio is less than 1, indicative of defensiveness toward the market, a result that is consistent with prior literature for sin stocks. In addition, the conditional correlation between the market and online gambling portfolio is small when compared to the correlation of the market and socially responsible portfolios. Findings suggest that the adoption of the Gambling Act 2005 increases the conditional correlation between the market and online gambling portfolio and it also increases the conditional betas for the online gambling portfolio. Research limitations/implications This paper serves as a starting point for future research on online gambling stocks. Going forward, studies can focus on the financial performance or accounting performance of online gambling stocks. Originality/value This empirical investigation provides insight into the risk characteristics of publicly listed online gambling companies in the UK.

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.

Analysis of risk spillover effect of copper option in China

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Wuyi Ye ◽  
Yiqi Wang ◽  
Jinhai Zhao
Keyword(s):  
Value At Risk ◽  
Risk Model ◽  
Spillover Effect ◽  
Spillover Effects ◽  
Futures Market ◽  
Content Type ◽  
Conditional Autoregressive ◽  
Derivative Markets ◽  
The Impact ◽  
Risk Spillover Effects

Purpose The purpose of this paper is to compare the changes in the risk spillover effects between the copper spot and futures markets before and after the issuance of copper options, analyze the risk spillover effects between the three markets after the issuance of the options and can provide effective suggestions for regulators and investors who hedge risks. Design/methodology/approach The MV-CAViaR model is an extended form of the vector autoregressive model (VAR) to the quantile model, and it is also a special form of the MVMQ-CAViaR model. Based on the VAR quantile model, this model has undergone continuous promotion of the Conditional Autoregressive Value-at-Risk Model (CAViaR) and the Multi-quantile Conditional Autoregressive Value-at-Risk Model (MQ-CAViaR), and finally got the current form of the model. Findings The issuance of options has led to certain changes in the risk spillover effect between the copper spot and its derivative markets, and the risk aggregation effect in the futures market has always been significant. Therefore, when supervising the copper product market and investors using copper derivatives to avoid market risks, they need to pay attention to the impact of futures on the spot market, the impact of options on the futures market and the risk spillover effects of spot and futures on the options market. Practical implications The empirical results of this paper can be used to hedge market risk investment strategies, and the changes in market relationships also provide an effective basis for the supervision of the copper product market by the supervisory authority. Originality/value It is the first literature research to discuss the risk and the impact of spillover effects of copper options on China copper market and its derivative markets. The MV-CAViaR model can capture the mutual risk influence between markets by modeling multiple markets simultaneously.

COMPARING THE IMPACTS OF OIL PRICE SHOCKS ACROSS STOCK MARKETS

2015 ◽  
Vol 77 (20) ◽  
Author(s):  
Siok Kun Sek ◽  
Zhan Jian Ng ◽  
Wai Mun Har
Keyword(s):  
Stock Returns ◽  
Stock Markets ◽  
Spillover Effect ◽  
Spillover Effects ◽  
Oil Price ◽  
Multivariate Garch ◽  
Oil Price Shocks ◽  
Price Shocks ◽  
Long Run ◽  
Short Run

We conduct empirical analyses on comparing the spillover effects of oil price shocks on the volatility of stock returns between oil importing and oil exporting countries. In particular, we seek to study how the nature of oil price shocks differs due to the oil dependency factor and how the stock markets react to such shocks. Applying the multivariate GARCH-BEKK(1,1) model, our results detect spillover effects between crude oil price and stock returns for all countries. The short run persistencies of shocks are smaller but the persistencies of shocks are very high in the long run. The results hold for both groups of countries. The results imply larger spillover effect from oil price shock into stock market in the oil importing countries.

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