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Return, Volatility and Risk Spillover from Oil Prices and the US Dollar Exchange Rate to the Indian Industrial Sectors

Author

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  • Dilip Kumar

    (Dilip Kumar is Research Scholar, Institute for Financial Management and Research, Chennai, India, email: dksic212@gmail.com; dilip.kumar@ifmr.ac.in)

  • S. Maheswaran

    (S. Maheswaran is Professor, Centre for Advanced Financial Studies, Institute for Financial Management and Research, Chennai, India, email: mahesh@ifmr.ac.in)

Abstract

This article examines the return, volatility, upside risk and downside risk spillover effects from crude oil prices and the US$/INR exchange rate to the major Indian industrial sectors using Hong’s (2001) approach. We make use of the generalised autoregressive conditional heteroskedasticity (GARCH) class of models based on the generalised error distribution (GED) to estimate extreme upside and downside Value-at-Risk (VaR). Our empirical results provide evidence of a significant return spillover effect from the crude oil market to the energy, FMCG and pharmaceutical (pharma) sectors and from the US$/INR exchange rate to the pharma sector. We also find evidence of significant volatility spillover from crude oil prices to the energy, fast-moving consumer goods (FMCG) and multinational corporation (MNC) sectors and from the US$/INR exchange rate to the energy and pharma sectors. Moreover, we find significant upside risk spillover from crude oil prices and the US$/INR exchange rate to all the industrial sectors (except for the energy sector with respect to the US$/INR exchange rate); significant downside risk spillover from crude oil prices to the energy, FMCG, pharma and MNC sectors and from the US$/INR exchange rate to only the pharma sector. In addition, we observe two-way downside risk spillover between crude oil prices and the US$/INR exchange rate.

Suggested Citation

  • Dilip Kumar & S. Maheswaran, 2013. "Return, Volatility and Risk Spillover from Oil Prices and the US Dollar Exchange Rate to the Indian Industrial Sectors," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 7(1), pages 61-91, February.
    • Handle: RePEc:sae:mareco:v:7:y:2013:i:1:p:61-91
    DOI: 10.1177/0973801012466103
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    Cited by:

    1. Muhammad Ali, Khalid M. Iraqi, Abdul Waheed Khan, 2019. "Impact of Oil Prices on Stock Market Performance: Evidence from Top Oil Importing Countries," Journal of Finance and Economics Research, Geist Science, Iqra University, Faculty of Business Administration, vol. 4(2), pages 1-14, October.
    2. Dilip Kumar, 2019. "Structural Breaks in Volatility Transmission from Developed Markets to Major Asian Emerging Markets," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 18(2), pages 172-209, August.
    3. Kumar, Dilip, 2017. "Realized volatility transmission from crude oil to equity sectors: A study with economic significance analysis," International Review of Economics & Finance, Elsevier, vol. 49(C), pages 149-167.

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    More about this item

    Keywords

    Return spillover; Volatility spillover; Upside risk spillover; Downside risk spillover; GJR-GARCH model; C22; C58; E44; F31;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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