Asymmetric volatility spillovers between oil and stock markets: Evidence from China and the United States

Abstract

The relationship between oil and stock markets is a hot topic, but little research has focused on the time-varying asymmetric volatility spillover in a quantitative manner. In this study, we use a new spillover directional measure and asymmetric spillover measures to investigate the dynamic asymmetric volatility spillover between oil and stock markets during the period of 2007 to 2016. Using the intra-day data of WTI future prices, the S&P 500 index, and the Shanghai stock market composite index, we find that there exists an asymmetric spillover effect between the oil market and stock markets and that bad volatility spillovers dominate good volatility spillovers for most of the sampling period. In addition, participants are more pessimistic about the oil market than they are about the stock market. We further investigate the presence of asymmetric response to volatility shocks using the asymmetric generalized dynamic conditional correlation (AG-DCC) model; the results also show strong evidence of asymmetries in volatility shocks between the oil and stock markets due to bad volatility.