Time-varying Co-Movement And Volatility Transmission Between The Oil Price And Stock Markets In The Baltics And Four European Countries

Abstract

The paper explores time-varying co-movement and volatility transmission between three Baltic (Estonia, Latvia and Lithuania) stock markets and two international crude oil indices (Brent and West Texas Intermediate (WTI)). It also investigates the relation between two major oil-importing (the EU and the UK) and oil-exporting (Norway and Russia) European countries and the two oil indices. We use daily data from 3 January 2000 to 18 January 2016. The DCC-GARCH model was employed to account for the time-varying in this study, which yielded several important findings. We found that the Baltics have a positive albeit lower level of time-varying co-movement with the international oil markets. In addition, the results revealed that the impacts of oil shocks in the Baltics are also lower than in the other four European markets. However, this finding is contrary to the existing literature, which argues that the Baltics are integrated. Considering the time-varying and volatility transmission with the oil-importing and oil-exporting countries, we found that there exists high-level time-varying co-movement. We also found that the volatility transmission and the magnitude of shocks from the oil markets are higher in oil-exporting countries. This result has important implications, especially for international investors and oil companies seeking to benefit from risk diversification and hedging techniques.

Dynamic Interrelationship and Volatility Spillover among Sustainability Stock Markets, Major European Conventional Indices, and International Crude Oil

“…In our research, we used the GARCH family to capture the dynamic interrelationship and spillover effect between DJSI-W and DJSI-E, international oil market prices and conventional stock market returns. We employed the DCC-MGARCH model created by Engle [62]; this model is compatible for controlling endogeneity, heteroscedasticity and omitted variable bias [63]. To utilize the DCC-MGARCH model, we first estimated the univariate GARCH parameter for each index.…”

Volatility Transmission between Oil Prices and Stock Prices as a New Source of Instability: Lessons from the UK Experience

“…There is little evidence to suggest that buybacks improve bank stock prices, although there appear to be two major causes as to why bank stocks act in this way. The process of volatility transmission involves several shareholders who became bankrupt (Bein, 2017), which is evidence that bank stocks have certain limitations and that prices of stocks are continually changing according to market conditions. Rises and falls in prices also have a significant effect because of the fact that they are related to volatility transmission (He & Lin, 2019).…”

“…Beneficial research has been completed over the past few years with regard to oil prices and the role of bank stock prices (BSP) in several contexts and countries. Recent research by Bein (2017) evaluated the overall impact and role of BSP in stabilizing overall oil prices and other factors that affect oil prices from the perspective of different regions and countries. This indicates the fact that a significant amount of effort and research has been completed over the last few years in terms of oil prices and its related factors.…”

Wavelets analysis of the Baltic equity market: risk and co-movement with the European market

“…Co-movement and volatility transmission between the oil price and stock markets in the Baltic states was investigated by Bein (2017). Alekneviciene et al (2012) went inside the Lithuanian stock market to investigate a portfolio of different weight stocks and compared a diversification effect of differently-weighted stocks portfolios.…”