Abstract
The relationship between the oil prices and the stock market has occupied several researchers in recent years. Most papers show that stock markets are affected by oil price fluctuations, with few papers supporting the reverse direction. The causal relationships between stock markets and oil prices depend on symmetric and asymmetric changes in oil prices or focus on the unexpected changes in oil prices. In this paper we employ a bivariate BEKK-GARCH(1,1) model in order to estimate the conditional volatility between the oil prices and the stock market index Dow Jones. We are using daily returns from 21 October 1997 to 31 May 2017. The results of our work showed that there is neither transmission of shocks nor volatility spillover between the two markets. Moreover, it was found that the conditional volatility of the returns for both indices is affected only by their own shocks and their own lagged conditional volatility.
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Notes
- 1.
A first-order Taylor expansion around the mean was used in order to calculate the standard errors for these coefficient terms (see Kearny and Patton 2000).
- 2.
Dow Jones Industrial Average data was collected by Yahoo Finance Database (^DJI).
- 3.
Crude oil Brent data was collected by U.S. Energy Information Administration (EIA) Database.
- 4.
«1» indicates the stock market (Dow Jones) and «2» indicates the oil market (Brent).
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Appendix
Appendix
(Figures 16.1, 16.2 and 16.3).
Histograms of the indices
a Plots of Dow Jones. b Plots of Brent
Notes Black = Variance of Dow Jones. Blue = Variance of Brent. Green = Covariance of the indices
Plots of variances-covariances between the stock and oil market for the full sample.
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Kartsonakis Mademlis, D., Dritsakis, N. (2018). Volatility Between Oil Prices and Stock Returns of Dow Jones Index: A Bivariate GARCH (BEKK) Approach. In: Tsounis, N., Vlachvei, A. (eds) Advances in Time Series Data Methods in Applied Economic Research. ICOAE 2018. Springer Proceedings in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-030-02194-8_16
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