Oil shocks and stock volatility: new evidence via a Bayesian, graph-based VAR approach

This article examines the temporal dependence between three oil shocks and realized volatility in the stock markets of G20 countries between 1994 and 2019. By applying a novel, graphical, Bayesian VAR (BGVAR) model, we calculate unidirectional linkages of oil and stock volatility with a full and seg...

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Bibliographic Details
Published in:Applied economics 2020-03, Vol.52 (11), p.1163-1180
Main Authors: Yin, Libo, Ma, Xiyuan
Format: Article
Language:English
Subjects:
Bayesian analysis
Bayesian graph-based VAR
Causality
Economic crisis
Economic growth
Economic theory
Oil shocks
Petroleum
Securities markets
stock volatility
structural relationships
time-varying
Volatility
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Summary:This article examines the temporal dependence between three oil shocks and realized volatility in the stock markets of G20 countries between 1994 and 2019. By applying a novel, graphical, Bayesian VAR (BGVAR) model, we calculate unidirectional linkages of oil and stock volatility with a full and segmented sample. The results suggest an overall causality from stock volatility to oil shocks. For certain short, specific periods, the causal direction reverses. Depending on the country and the source of an oil shock, the magnitude and type of the effect can vary considerably. Specific oil-market shocks occur most often in our full sample. In a time-varying structure, oil supply shocks' impact on stock volatility is more prominent, and net oil-importing countries' responses to these shocks are greater than for oil-exporting countries. In addition, we find that relationship dynamics can capture market information, such as global economic growth during the 2008-2009 financial crisis.
ISSN:0003-6846
1466-4283
DOI:10.1080/00036846.2019.1659497