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Dynamic risk spillovers from oil to stock markets: Fresh evidence from GARCH copula quantile regression-based CoVaR model

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  • Tian, Maoxi
  • Alshater, Muneer M.
  • Yoon, Seong-Min

Abstract

This study proposes a GARCH copula quantile regression model to capture the downside and upside tail dependence between oil price change and stock market returns at different risk levels. In the model, ten copulas are provided to measure the nonlinearity of the tail dependence with the marginal distribution built on the GARCH family models. Using daily price data of stock markets in ten important countries and Brent oil market, we estimate the downward and upward risk spillovers from oil to stock markets. The empirical results suggest strong evidence of risk spillover effects from oil to stock markets. Furthermore, downside and upside risk spillovers from oil to the Italian and German stock markets, and the Brazilian and Russian stock markets are the largest for developed countries and emerging market countries, respectively. The US and Mexican stock markets display the smallest downside and upside risk spillovers for two types of countries. We also find evidence that the downside risk spillovers are larger than upside risk spillovers, a finding which is consistent with the flight-to-quality phenomenon. Finally, the dynamic risk spillover effects show heterogeneity over time and are comparatively different for each country. Our results provide significant implications for portfolio managers and international regulators who want to optimize their investment portfolios and maintain stock market stability.

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  • Tian, Maoxi & Alshater, Muneer M. & Yoon, Seong-Min, 2022. "Dynamic risk spillovers from oil to stock markets: Fresh evidence from GARCH copula quantile regression-based CoVaR model," Energy Economics, Elsevier, vol. 115(C).
  • Handle: RePEc:eee:eneeco:v:115:y:2022:i:c:s0140988322004704
    DOI: 10.1016/j.eneco.2022.106341
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    More about this item

    Keywords

    Risk spillover; Oil market; Stock market; CoVaR; GARCH copula quantile regression;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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    Access and download statistics

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