Oil and stock markets before and after financial crises: A local Gaussian correlation approach

Abstract

The effect of financial shocks on the cross‐market linkages between oil prices (spot and futures) and stock markets is examined for four major crises. We employ the local Gaussian correlation approach and find that the two markets were regionalized for most of the 1990s and the early 2000s. Flights from stocks to oil occur in all crisis episodes, except the recent global financial crisis. The view that stock and oil markets behave like “a market of one” after the financialization of commodities is further supported by the presence of contagion between US stock markets and all the benchmark oil markets.

Shape-shift contagion in emerging markets equities: evidence from frequency- and time-domain analysis

“…is stationarity within a neighbourhoods (frequency bands). This can be likened to the local Gaussian approximation and local correlation (seeBampinas & Panagiotidis, 2017;Støve, Tjøstheim, & Hufthammer, 2014).…”

Forecasting the Volatility of Crude Oil: The Role of Uncertainty and Spillovers

“…Moreover, the recent financialization that has characterized developments in the oil market has led to the increased participation of hedge funds, pension funds, and insurance companies in the market, as per Bampinas and Panagiotidis [12], Degiannakis and Filis [13], and Bonato [14], which resulted in oil being viewed as an alternative investment in the portfolio decisions of financial institutions (especially post the GFC). Precise forecasts of oil-price volatility are of vital importance to oil traders, since volatility is a key input to investment decisions and portfolio choices [15].…”

Volatility persistence and asymmetry under the microscope: the role of information demand for gold and oil

“…Investment incentives of these types differ from traditional ones, while having important consequences for the behaviour of gold and oil price fluctuations. For instance, commodity index traders intensify their investment in commodities to improve portfolio diversification (Daskalaki and Skiadopoulos, ; Bessler and Wolff, ), to hedge against movements of inflation (Erb and Harvey, ; Bampinas and Panagiotidis, ; Beckmann et al ., ), or to ‘fly to safety’ in times of market turmoil (Baur and McDermott, ; Bampinas and Panagiotidis, ). Moreover, the vast inflow of commodity index traders has made gold and oil markets more susceptible to the mood of financial markets and economic conditions (Tang and Xiong, ; Büyükşahin and Robe, ).…”