Template-type: ReDIF-Paper 1.0
Author-Name: Chia-Lin Chang
Author-Email: changchialin@nchu.edu.tw
Author-Person: pch286 
Author-Workplace-Name: Department of Applied Economics, Department of Finance, National Chung Hsing University
	Taichung, Taiwan
Author-Name: Michael McAleer
Author-Person: pmc90 
Author-Workplace-Name: Econometrisch Instituut (Econometric Institute), Faculteit der Economische 
	Wetenschappen (Erasmus School of Economics), Erasmus Universiteit, Tinbergen Instituut (Tinbergen Institute).
Author-Workplace-Name: Division of Marketing and International Business, Nanyang Technological University, Singapore.
Author-Name: Roengchai Tansuchat
Author-Workplace-Name: Faculty of Economics Maejo University Chiang Mai, Thailand
Title: Conditional Correlations and Volatility Spillovers Between Crude Oil and Stock Index Returns
Abstract: This paper investigates the conditional correlations and volatility spillovers between the crude oil 
	and financial markets, based on crude oil returns and stock index returns. Daily returns from 2 January 
	1998 to 4 November 2009 of the crude oil spot, forward and futures prices from the WTI and Brent markets, 
	and the FTSE100, NYSE, Dow Jones and S&P500 stock index returns, are analysed using the CCC model of 
	Bollerslev (1990), VARMA-GARCH model of Ling and McAleer (2003), VARMA-AGARCH model of McAleer, Hoti 
	and Chan (2008), and DCC model of Engle (2002). Based on the CCC model, the estimates of conditional 
	correlations for returns across markets are very low, and some are not statistically significant, which 
	means the conditional shocks are correlated only in the same market and not across markets. However, the 
	DCC estimates of the conditional correlations are always significant. This result makes it clear that 
	the assumption of constant conditional correlations is not supported empirically. Surprisingly, the 
	empirical results from the VARMA-GARCH and VARMA-AGARCH models provide little evidence of volatility 
	spillovers between the crude oil and financial markets. The evidence of asymmetric effects of negative 
	and positive shocks of equal magnitude on the conditional variances suggests that VARMA-AGARCH is 
	superior to VARMA-GARCH and CCC. The estimation and analysis of the volatility and conditional 
	correlations between crude oil returns and stock index returns can provide useful information for 
	investors, oil traders and government agencies that are concerned with the crude oil and stock markets, 
	especially regarding optimal hedging across the two markets.
Classification-JEL: C22, C32, G17, G32.
Keywords: Multivariate GARCH, volatility spillovers, conditional correlations, crude oil prices, spot, forward 
	and futures prices, stock indexes.
Note: The authors are most grateful to a referee for helpful comments and suggestions. For financial support, the 
	first author is most grateful to the National Science Council, Taiwan, the second author thanks the 
	Australian Research Council, National Science Council, Taiwan, and the Japan Society for the Promotion 
	of Science, and the third author acknowledges the Faculty of Economics, Maejo University, Thailand.
Length: 40 pages 
Creation-Date: 2011 
Number: 2011-34
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae1134.txt
File-URL: https://eprints.ucm.es/id/eprint/13819/1/1134.pdf
File-Format: Application/pdf
File-Function: Revised November 2011
Handle: RePEc:ucm:doicae:1134