The connectedness between crude oil and financial markets: Evidence from implied volatility indices

Basel Awartani, Maghyereh Aktham, Guermat Cherif

    Research output: Contribution to journalArticlepeer-review

    47 Citations (Scopus)

    Abstract

    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.

    Original languageEnglish
    Pages (from-to)56-69
    Number of pages14
    JournalJournal of Commodity Markets
    Volume4
    Issue number1
    DOIs
    Publication statusPublished - Dec 1 2016

    Keywords

    • Equity volatility, directional connectedness
    • Implied volatility
    • Oil price volatility

    ASJC Scopus subject areas

    • Finance
    • Economics and Econometrics

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