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Does WTI Oil Price Returns Volatility Spillover to the Exchange Rate and Stock Index in the US?

Author

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  • Ching-Chun Wei

    (Department of Finance, Providence University, 200 Sec 7, Taichung Boulevard, Taichung City, 433, Taiwan)

  • Chung-Hsuan Chen

    (Department of Finance, Providence University, 200 Sec 7, Taichung Boulevard, Taichung City, 433, Taiwan)

Abstract

The purpose of this paper is to examine whether the volatility of the West Texas Intermediate oil spot returns (WTIR) is affected by the Texas Light Sweet oil futures returns (FUR), the exchange rate returns between the US dollar and the Euro (ERR), and the S&P 500 energy index returns (EIR), and if any of those have changed over time. The daily data of the WTIR, the FUR, the ERR, and the EIR between the period of January 4, 2000 and September 30, 2009, were utilized. The empirical results of the multivariate GARCH of the BEKK model indicated that the WTIR is significantly affected by its own past volatility, and by the volatility of FUR, ERR, and EIR. Most likely, WTIR employs a structural conversion in our dummy variable for selected time points. This suggests that investors could use the FUR s past volatility as a basis for WTIR purchase. In addition, the changes in ERR s and EIR s past volatility can be partially used as a basis for the same purpose.

Suggested Citation

  • Ching-Chun Wei & Chung-Hsuan Chen, 2014. "Does WTI Oil Price Returns Volatility Spillover to the Exchange Rate and Stock Index in the US?," International Journal of Energy Economics and Policy, Econjournals, vol. 4(2), pages 189-197.
    • Handle: RePEc:eco:journ2:2014-02-9
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    Cited by:

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    2. Cem Berk, 2016. "Indexing Oil from a Financial Point of View: A Comparison between Brent and West Texas Intermediate," International Journal of Energy Economics and Policy, Econjournals, vol. 6(2), pages 152-158.

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    More about this item

    Keywords

    Oil spot and futures; Exchange rate; Stock index market; Multivariate GARCH-BEKK;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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