Does the asymmetric dependence volatility affect risk spillovers between the crude oil market and BRICS stock markets?

Abstract

Earlier studies have confirmed the asymmetry as a key feature of return volatility and risk spillovers. However, little research has explored the impact of asymmetric dependence volatility on risk spillovers. In this paper, we propose the asymmetric generalized autoregressive score-time-varying mixture model to analyze this issue. Using a dataset covering the crude oil market and BRICS stock markets from January 11, 2000 to June 11, 2021, we find the tail dependence of these markets is falling faster than it is rising, and this feature is more significant in upper tail dependence. Also, the capture of asymmetric dependence volatility is beneficial for the estimation of risk spillovers. Moreover, the risk from the crude oil market will amplify the downside risks in BRICS stock markets. In addition, downside risk spillovers between these markets are significant during the COVID-19 pandemic. • A new approach is proposed to capture asymmetric dependence volatility between the crude oil market and BRICS stock markets. • The tail dependence of these markets is falling faster than it is rising. • The asymmetric volatility is more significant in upper tail dependence. • The capture of asymmetric dependence volatility is beneficial for the estimation of risk spillovers. • Downside risk spillovers are significant during the COVID-19 pandemic.