Volatility transmission between oil prices and equity sector returns

Farooq Malik, Bradley T. Ewing

Research output: Contribution to journalArticle

168 Scopus citations

Abstract

This paper employs bivariate GARCH models to simultaneously estimate the mean and conditional variance between five different US sector indexes and oil prices. Since many different financial assets are traded based on these market sector returns, it is important for financial market participants to understand the volatility transmission mechanism over time and across these series in order to make optimal portfolio allocation decisions. We examine weekly returns from January 1, 1992 to April 30, 2008 and find evidence of significant transmission of shocks and volatility between oil prices and some of the examined market sectors. The findings support the idea of cross-market hedging and sharing of common information by investors.

Original languageEnglish
Pages (from-to)95-100
Number of pages6
JournalInternational Review of Financial Analysis
Volume18
Issue number3
DOIs
StatePublished - Jun 2009

Keywords

  • GARCH
  • Oil volatility
  • Sector indexes
  • Volatility transmission

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