Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/145360
Authors: 
Chang, Chia-Lin
McAleer, Michael
Tian, Jiarong
Year of Publication: 
2016
Series/Report no.: 
Tinbergen Institute Discussion Paper 16-053/III
Abstract: 
The primary purpose of the paper is to analyze the conditional correlations, conditional covariances, and co-volatility spillovers between international crude oil and associated financial markets. The paper investigates co-volatility spillovers (namely, the delayed effect of a returns shock in one physical or financial asset on the subsequent volatility or co-volatility in another physical or financial asset) between the oil and financial markets. The oil industry has four major regions, namely North Sea, USA, Middle East, and South-East Asia. Associated with these regions are two major financial centers, namely UK and USA. For these reasons, the data to be used are the returns on alternative crude oil markets, returns on crude oil derivatives, specifically futures, and stock index returns in UK and USA. The paper will also analyze the Chinese financial markets, where the data are more recent. The empirical analysis will be based on the diagonal BEKK model, from which the conditional covariances will be used for testing co-volatility spillovers, and policy recommendations. Based on these results, dynamic hedging strategies will be suggested to analyze market fluctuations in crude oil prices and associated financial markets.
Subjects: 
Co-volatility spillovers
crude oil
financial markets
spot
futures
diagonal BEKK
optimal dynamic hedging
JEL: 
C58
D53
G13
G31
O13
Document Type: 
Working Paper

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