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Dynamic Correlations and Volatility Spillovers between Crude Oil and Stock Index Returns: The Implications for Optimal Portfolio Construction

Year 2014, Volume: 4 Issue: 3, 327 - 336, 01.09.2014

Yen-Hsien Lee Ya-Ling Huang Chun-Yu Wu

https://izlik.org/JA65UH36CP

Abstract

This paper researches the portfolio construction between stock price of group of seven (G7) and West Texas Intermediate crude oil from January 2, 1998 to March 1, 2012. We investigate the volatility spillover between stock price and oil price with the dynamic conditional correlation (DCC), constant conditional correlation (CCC) and BEKK models, and also analyze their optimal hedge ratio and portfolio weights. The empirical result is that the hedge effectiveness of DCC model is better than the CCC model and BEKK models. The hedge effectiveness (HE) in Canada is the highest but Japan is the lowest. Moreover, the results show that Japan has the biggest optimal portfolio weight and the lowest hedge ratio. We do this research with expectation of providing investors information to increase the basis of investing.

Keywords

Crude oil DCC model Hedge effectiveness Optimal portfolio

Year 2014, Volume: 4 Issue: 3, 327 - 336, 01.09.2014

Yen-Hsien Lee Ya-Ling Huang Chun-Yu Wu

https://izlik.org/JA65UH36CP

Abstract

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Details

Other ID JA62DT24KY
Authors

Yen-Hsien Lee This is me

Ya-Ling Huang This is me

Chun-Yu Wu This is me

Publication Date September 1, 2014
IZ https://izlik.org/JA65UH36CP
Published in Issue Year 2014 Volume: 4 Issue: 3

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APA Lee, Y.-H., Huang, Y.-L., & Wu, C.-Y. (2014). Dynamic Correlations and Volatility Spillovers between Crude Oil and Stock Index Returns: The Implications for Optimal Portfolio Construction. International Journal of Energy Economics and Policy, 4(3), 327-336. https://izlik.org/JA65UH36CP
AMA 1.Lee YH, Huang YL, Wu CY. Dynamic Correlations and Volatility Spillovers between Crude Oil and Stock Index Returns: The Implications for Optimal Portfolio Construction. IJEEP. 2014;4(3):327-336. https://izlik.org/JA65UH36CP
Chicago Lee, Yen-Hsien, Ya-Ling Huang, and Chun-Yu Wu. 2014. “Dynamic Correlations and Volatility Spillovers Between Crude Oil and Stock Index Returns: The Implications for Optimal Portfolio Construction”. International Journal of Energy Economics and Policy 4 (3): 327-36. https://izlik.org/JA65UH36CP.
EndNote Lee Y-H, Huang Y-L, Wu C-Y (September 1, 2014) Dynamic Correlations and Volatility Spillovers between Crude Oil and Stock Index Returns: The Implications for Optimal Portfolio Construction. International Journal of Energy Economics and Policy 4 3 327–336.
IEEE [1]Y.-H. Lee, Y.-L. Huang, and C.-Y. Wu, “Dynamic Correlations and Volatility Spillovers between Crude Oil and Stock Index Returns: The Implications for Optimal Portfolio Construction”, IJEEP, vol. 4, no. 3, pp. 327–336, Sept. 2014, [Online]. Available: https://izlik.org/JA65UH36CP
ISNAD Lee, Yen-Hsien - Huang, Ya-Ling - Wu, Chun-Yu. “Dynamic Correlations and Volatility Spillovers Between Crude Oil and Stock Index Returns: The Implications for Optimal Portfolio Construction”. International Journal of Energy Economics and Policy 4/3 (September 1, 2014): 327-336. https://izlik.org/JA65UH36CP.
JAMA 1.Lee Y-H, Huang Y-L, Wu C-Y. Dynamic Correlations and Volatility Spillovers between Crude Oil and Stock Index Returns: The Implications for Optimal Portfolio Construction. IJEEP. 2014;4:327–336.
MLA Lee, Yen-Hsien, et al. “Dynamic Correlations and Volatility Spillovers Between Crude Oil and Stock Index Returns: The Implications for Optimal Portfolio Construction”. International Journal of Energy Economics and Policy, vol. 4, no. 3, Sept. 2014, pp. 327-36, https://izlik.org/JA65UH36CP.
Vancouver 1.Yen-Hsien Lee, Ya-Ling Huang, Chun-Yu Wu. Dynamic Correlations and Volatility Spillovers between Crude Oil and Stock Index Returns: The Implications for Optimal Portfolio Construction. IJEEP [Internet]. 2014 Sep. 1;4(3):327-36. Available from: https://izlik.org/JA65UH36CP