Oil in crisis: What can we learn

Abstract

This study focuses on the Chicago Board Options Exchange Oil Volatility Index (CBOEOVX)'s volatility transmission to the European stock markets. In the first section, to determine the contingent connection between market returns and CBOEOVX and to examine if CBOEOVX return Granger causes economic capital rates of return, the Dynamic Conditional Correlation (DCC) GARCH model has been used. Then, the study examined the asymmetric effects of fluctuations in estimated unpredictability on markets' profitability as the last step of the methoology. In this regard, the study applies quantile regression to examine the asymmetrical effect of the CBOEOVX on the market's daily returns. We have discovered a statistically significant inverse link that changes over time across our various sample markets. This hints at and supports CBOEOVX ‘s influence on the European stock market as a source of primary energy risk. In addition, we find substantial evidence of an asymmetric effect of fluctuations in the CBOEOVX on very negative market profits in the lowest quartile. Our findings not only build on and support previous research and add to the existing body of knowledge but also have evident consequences for future research, regulatory authorities, and practitioners. Practitioners and regulators may use these findings to better comprehend the connection between all crises and pave the path for the future.