Topics in Middle Eastern and North African Economies
Document Type
Article
Publication Date
9-1-2016
Abstract
In contrast to previous CDS literature, this study focuses on the magnitude of volatility transmission and the risk spillover mechanism across the oil market, financial market risks, and the oil-related Credit Default Swap (CDS) sectors. Our dataset includes futures prices of West Texas Intermediate (WTI) in addition to seven different measures of markets and credit risks. Four of the vast risk measures are the oil-related sector CDSs for auto, chemicals, natural gas, and utility sector CDSs. Two measures of the financial market risk are further included in the study, which include the one-month expected equity volatility measured by the volatility index (VIX) and the one-month bond option volatility estimate (MOVE) or swaption move expected volatility (SMOVE). The daily dataset covers the period from January 6, 2004 to February 2, 2016. The volatility transmission mechanism across the oil and financial markets and CDS sectors is examined, using the volatility impulse responses. In addition to showing the magnitude of the volatility transmission, the volatility impulse responses have the advantage of providing valuable information on the speed of risk transmission among different markets. The shape and sign of the volatility impulse responses also provide significant information on the transmission mechanism. We evaluate the risk transmission due to several recent crisis shocks. The results show complicated transmission mechanisms that spread over long periods.
Journal Title
Topics in Middle Eastern and North African Economies
ISSN
2334-282X
Publisher
Middle East Economic Association and Loyola University Chicago
Volume
18
Issue
2
Recommended Citation
Balcılar, Mehmet; Hammoudeh, Shawkat; and Akay Toparli, Elif, "On the risk spillover across the oil market, financial markets, and the oil-related CDS sectors: A Volatility impulse response approach". Topics in Middle Eastern and North African Economies, electronic journal, 18, 2, Middle East Economic Association and Loyola University Chicago, 2016, http://www.luc.edu/orgs/meea/
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Copyright Statement
© 2016 The Authors
Comments
Presentation of the articles in the Topics in Middle Eastern and North African Economies was made possible by a limited license granted to Loyola University Chicago and Middle East Economics Association from the authors who have retained all copyrights in the articles.