Volatility Transmission between WTI and Brent Crude Oil Markets

SANG, HOON KANG and SEONG-MIN, YOON and SUNG-YONG, PARK (2014) Volatility Transmission between WTI and Brent Crude Oil Markets. In: International Conference on Advances in Human Science, Economics and Social Study - AHES 2014, 04-05 January, 2014, Bangkok.

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Abstract

Transmission mechanisms of volatility between crude oil markets have drawn the attention of numerous academics and practitioners because they both play crucial roles in portfolio and risk management in crude oilmarkets. However, there has been no consensus on the evidence of volatility spillover between WTI and Brent oil prices in the literature. In this context, we reexamined the volatility linkages between two representative crude oil markets using a VECM and an asymmetric bivariate GARCH model. First, looking at the return transmission through the VECM test, we found a long-run equilibrium and bidirectional relationshipbetween two crude oil markets. However, the estimation results of the GARCH-BEKK model suggest that there is unidirectional volatility spillover from the WTI market to the Brent market, implying that the WTI markettends to exert influence over the Brent market and not vice versa. Regarding asymmetric volatility transmission, we also found that bad news volatility in the WTI market increases the volatility of the Brentmarket.Thus, WTI information is transmitted into the Brent market, indicating that the prices of the WTI market seem to lead the prices of the Brent market.

Item Type: Conference or Workshop Item (Paper)
Uncontrolled Keywords: Asymmetric volatility transmission; Causality; Cointegration; GARCH-BEKK model; Volatility spillover effect.
Depositing User: Mr. John Steve
Date Deposited: 11 May 2019 08:01
Last Modified: 11 May 2019 08:01
URI: http://publications.theired.org/id/eprint/2179

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