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Spillover and portfolio analysis for oil and stock market: A new insight across financial crisis, COVID-19 and Russian-Ukraine war

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  • Lei, Lei
  • Aziz, Ghazala
  • Sarwar, Suleman
  • Waheed, Rida
  • Tiwari, Aviral Kumar

Abstract

This research examines the link between the volatility of the Karachi Stock Exchange and West Texas Intermediate (WTI) crude oil, using daily data between July 1, 2001 and December 31, 2022. We further investigate the spillover and investment strategies variation across the financial crisis, COVID-19, and the Russian-Ukrainian conflict. We employ the well-known investment analysis; portfolio weights, hedge ratio and hedging effectiveness. We extract the estimates from symmetric and asymmetric GARCH approaches for investment analysis. Asymmetric GARCH provides the response of negative and positive shocks. The findings demonstrate that lagged volatility, rather than lagged shocks, is a better predictor of market volatility in the future. Furthermore, the data support the notion that shocks, and volatility are communicated for the case of before, during, and after the crisis. After the outbreak of COVID-19 and the subsequent Russian-Ukraine war, researchers have discovered a transmission of shock and volatility from oil to stock markets. For policy suggestions, we recommend that oil revenue might be used to cushion other investment losses. After COVID-19 and the Russian-Ukraine war, investors should buy oil assets to hedge their portfolios against the ensuing catastrophe. However, the policy suggestions arising from the study findings may be employed by investors and portfolio managers.

Suggested Citation

  • Lei, Lei & Aziz, Ghazala & Sarwar, Suleman & Waheed, Rida & Tiwari, Aviral Kumar, 2023. "Spillover and portfolio analysis for oil and stock market: A new insight across financial crisis, COVID-19 and Russian-Ukraine war," Resources Policy, Elsevier, vol. 85(PA).
    • Handle: RePEc:eee:jrpoli:v:85:y:2023:i:pa:s0301420723003562
    DOI: 10.1016/j.resourpol.2023.103645
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    5. Jin Shang & Shigeyuki Hamori, 2024. "The response of oil-importing and oil-exporting countries’ macroeconomic aggregates to crude oil price shocks: some international evidence," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 14(4), pages 933-980, December.
    6. Asafo-Adjei, Emmanuel & Tiwari, Aviral Kumar & Abakah, Emmanuel Joel Aikins & Lee, Chi-Chuan, 2024. "Risk synchronization in Australia stock market: A sector analysis," International Review of Economics & Finance, Elsevier, vol. 93(PA), pages 582-610.

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    More about this item

    Keywords

    Volatility spillovers; GARCH model; Hedge ratios; Crisis; COVID-19; Russia-Ukraine war;
    All these keywords.

    JEL classification:

    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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