Investigating Spillover between the Oil Markets and Stock Market Volatility using Bayesian Multivariate Stochastic Volatility Model

Subject Areas : Journal of Investment Knowledge

Ali Farhadian ¹ , Moslem Nilchi ²

1 - Assistant Prof., Management and Entrepreneurship Department, Kashan University, Kashan, Iran.
2 - Ph.D. Candidate in Finance, Yazd University, Yazd, Iran.

Received: 2020-02-08 Accepted : 2020-05-09 Published : 2022-09-23

Keywords: Energy Economy, Volatility Spillover, volatility, oil market, Bayesian Structural Multivariate Stochastic Volatility,

Abstract :

One of the major concerns of researchers and policy makers in recent years is the nature and magnitude of the correlation between financial markets and the oil market. The focus is on the role that both markets play in developing countries. The relationship between oil prices and the stock market has been studied in many studies. The methods used to study this issue have been used in the GARCH approach. In this study, using the BMSV model of the multivariate econometric Volatility model introduced by Harvey and others (1994), a survey of the spillover of energy market Volatility (OPEC oil yield) in the Iranian stock market was presented. In the results, BMSV for stock returns-oil returns showed a positive Volatility spillover (0.838) in these two markets. The results of this survey are of great importance to investors in the stock market. In particular, it was found that the amount of Volatility spillover is highly correlated with oil yield. Therefore, the energy market news is a key factor in making decisions on investing in the stock market. Because the use of this information minimizes the risk of investing in the stock market.

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