SHOCK AND VOLATILITY SPILLOVERS BETWEEN OIL AND SOME BALKAN STOCK MARKETS

Kurshid M., Kırkulak Uludağ B.

ROMANIAN JOURNAL OF ECONOMIC FORECASTING, vol.20, no.4, pp.47-59, 2017 (SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 20 Issue: 4
  • Publication Date: 2017
  • Journal Name: ROMANIAN JOURNAL OF ECONOMIC FORECASTING
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus
  • Page Numbers: pp.47-59
  • Keywords: transmission, VAR-GARCH, hedge ratio, PRICE SHOCKS, HEDGING EFFECTIVENESS, PORTFOLIO MANAGEMENT, FINANCIAL-MARKETS, RETURNS, FLUCTUATIONS, IMPACTS, FUTURES, CHINA, MODEL
  • Dokuz Eylül University Affiliated: Yes

Abstract

In this paper, we examine the volatility spillover between WTI oil and four Balkan stock markets (Romania, Bulgaria, Greece and Turkey). We also analyze the optimal weights and hedge ratios for oil-stock portfolio holdings and show how empirical results can be used to build effective hedging strategy. We used VAR-GARCH model during the period from 20 October 2000 to 08 February 2016. The findings show significant evidence of shock and volatility linkages between oil and Balkan stock markets. In particular, past oil shocks play a crucial role in explaining the dynamics of conditional return and volatility in Balkan stock markets. Moreover, the portfolio analysis suggests that adding oil to a portfolio of Balkan stocks can help to hedge effectively against stock risk exposure over time.