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Do spillover effects between crude oil and natural gas markets disappear? Evidence from option markets

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  • Zhu, Fangfei
  • Zhu, Yabei
  • Jin, Xuejun
  • Luo, Xingguo

Abstract

This study investigates the volatility relationship between crude oil and natural gas markets from 2007 to 2015. Particularly, we focus on implied volatility and provide evidence from both call and put options. In general, we find that there are no volatility dependencies between these two markets after 2007, which is consistent with price independencies documented in Batten et al. (2017). However, we observe significant causality relations from oil to gas in put options in a minority of our sample. Further, the causalities can be decomposed into short-term and long-term relations, which might be explained by a series of influential events.

Suggested Citation

  • Zhu, Fangfei & Zhu, Yabei & Jin, Xuejun & Luo, Xingguo, 2018. "Do spillover effects between crude oil and natural gas markets disappear? Evidence from option markets," Finance Research Letters, Elsevier, vol. 24(C), pages 25-33.
    • Handle: RePEc:eee:finlet:v:24:y:2018:i:c:p:25-33
    DOI: 10.1016/j.frl.2017.05.007
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    Cited by:

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    5. Li, Jingyu & Liu, Ranran & Yao, Yanzhen & Xie, Qiwei, 2022. "Time-frequency volatility spillovers across the international crude oil market and Chinese major energy futures markets: Evidence from COVID-19," Resources Policy, Elsevier, vol. 77(C).

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    More about this item

    Keywords

    Time-varying causality; Implied volatility; Crude oil; Natural gas; Options;
    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
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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