Abstract
By using our newly defined measure, we detect and quantify asymmetries in the volatility spillovers of petroleum commodities: crude oil, gasoline, and heating oil. The increase in volatility spillovers after 2001 correlates with the progressive fin-ancialization of the commodities. Further, increasing spillovers from volatility among petroleum commodities substantially change their pattern after 2008 (the financial crisis and advent of tight oil production). After 2008, asymmetries in spillovers markedly declined in terms of total as well as directional spillovers. In terms of asymmetries we also show that overall volatility spillovers due to negative (price) returns materialize to a greater degree than volatility spillovers due to positive returns. An analysis of directional spillovers reveals that no petroleum commodity dominates other commodities in terms of general spillover transmission.
Highlights
By using our newly defined measure, we detect and quantify asymmetries in the volatility spillovers of petroleum commodities: crude oil, gasoline, and heating oil
In doing so we differentiate between spillovers due to negative and positive returns as the asymmetry has been proven to play an important role in many economic and financial issues related to our analysis (Ramos and Veiga, 2013; Du et al, 2011; Nazlioglu et al, 2013; Bermingham and O’Brien, 2011)
Why do we care about volatility spillovers, and what are the implications for investors, regulators, and facility operators? Since volatility serves as a proxy measure of risk, substantial changes in volatility and its spillovers across markets are able to negatively impact risk-averse investors
Summary
By using our newly defined measure, we detect and quantify asymmetries in the volatility spillovers of petroleum commodities: crude oil, gasoline, and heating oil. Increasing spillovers from volatility among petroleum commodities substantially change their pattern after 2008 (the financial crisis and advent of tight oil production). Research on the interdependencies observed on financial and commodities markets has led to analyzing returns and volatility, and their spillovers (Dimpfl and Jung, 2012). Knowledge of volatility spillover dynamics has important implications for inves tors and financial institutions in terms of portfolio construction and risk management as these spillovers and their direction may greatly affect portfolio diversification and insurance against risk. Such negative asymmetry is most visible before 2008 while later asymmetries in spillovers considerably decline
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