Modelling dynamic dependence and risk spillover between all oil price shocks and stock market returns in the BRICS

• Published in: International review of financial analysis 2020-03, Vol.68, p.101238, Article 101238
• Main Authors: Ji, Qiang, Liu, Bing-Yue, Zhao, Wan-Li, Fan, Ying
• Format: Article
• Language: English
• Subjects: BRICS; Copula-based CoVaR; Dynamic dependence; Oil price shocks; Risk spillover
• ISSN: 1057-5219; 1873-8079
• DOI: 10.1016/j.irfa.2018.08.002

This paper investigates the dynamic dependence and risk spillover between BRICS stock returns and different types of oil shocks, combining the Structural VAR model and time-varying copula-GARCH-based CoVaR approach. Our findings indicate that the dependence between BRICS stock returns and oil shocks is time-varying and exhibits different behaviours depending on the shock types in the oil market. In general, the shape of the CoVaRs in each country is comparatively different, depending on its special market situation and domestic policies. There is significant risk spillover from oil-specific demand shock to stock returns in all the BRICS countries. Finally, in Brazil, Russia and India, there is a significant asymmetric effect between upside and downside risk spillover based on oil aggregate demand shock and oil-specific demand shock. •This paper investigates the dynamic dependence between BRICS stock returns and different types of oil shocks.•The Structural VAR model and time-varying copula-GARCH-based CoVaR approach are used.•The dependence between stock returns and oil shocks is time-varying and exhibits different behaviours.•There is significant risk spillover from oil-specific demand shock to stock returns in BRICS.•Significant asymmetric effect exists between upside and downside CoVaRs in Brazil, Russia and India.