TY - JOUR
T1 - The connectedness between crude oil and financial markets
T2 - Evidence from implied volatility indices
AU - Awartani, Basel
AU - Aktham, Maghyereh
AU - Cherif, Guermat
N1 - Publisher Copyright:
© 2016 Elsevier B.V.
PY - 2016/12/1
Y1 - 2016/12/1
N2 - In this paper we exploit newly introduced implied volatility indexes to investigate the directional risk transfer from oil to US equities, Euro/Dollar exchange rates, precious metals and agricultural commodities. We find significant volatility transmission from oil to equities but little transmission to agricultural commodities. The total pairwise directional connectedness to equities is around 20.4%, while it is only 1.6%, 1.0% and 2.0% to wheat, corn, and soybeans respectively. The risk spillover from oil to precious metals and Euro/Dollar foreign exchange rates is moderate. For instance, the oil market uncertainty spills 11.0%, 11.1% and 8.9% to gold, silver and Euro/Dollar exchange rate respectively. The volatility crossover from all of these markets to oil is tiny, implying that oil is the main driver of its association with these markets. Finally, we provide evidence that the transmission from oil to other markets has increased since the collapse of oil prices in July 2014.
AB - In this paper we exploit newly introduced implied volatility indexes to investigate the directional risk transfer from oil to US equities, Euro/Dollar exchange rates, precious metals and agricultural commodities. We find significant volatility transmission from oil to equities but little transmission to agricultural commodities. The total pairwise directional connectedness to equities is around 20.4%, while it is only 1.6%, 1.0% and 2.0% to wheat, corn, and soybeans respectively. The risk spillover from oil to precious metals and Euro/Dollar foreign exchange rates is moderate. For instance, the oil market uncertainty spills 11.0%, 11.1% and 8.9% to gold, silver and Euro/Dollar exchange rate respectively. The volatility crossover from all of these markets to oil is tiny, implying that oil is the main driver of its association with these markets. Finally, we provide evidence that the transmission from oil to other markets has increased since the collapse of oil prices in July 2014.
KW - Equity volatility, directional connectedness
KW - Implied volatility
KW - Oil price volatility
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U2 - 10.1016/j.jcomm.2016.11.002
DO - 10.1016/j.jcomm.2016.11.002
M3 - Article
AN - SCOPUS:85006320866
SN - 2405-8513
VL - 4
SP - 56
EP - 69
JO - Journal of Commodity Markets
JF - Journal of Commodity Markets
IS - 1
ER -