Dynamic Spillovers between Oil and Stock Markets: New Approaches at Spillover Index

Abstract

This study investigates the spillover effects of return and volatility between Brent oil market and stock markets (comparing oil market with both stock markets of oil-exporting and oil-importing countries together and individually) by spillover index. We further use parametric and nonparametric methods to examine the major events’ impact on dynamic of return and volatility spillover indices between Brent oil market and stock markets. The empirical evidence indicates oil-exporting countries have had significant impact on returns and volatilities of oil-importing countries, which stock market in Canada is a dominant net sender and stock market in Netherland is a dominant net receiver. Second, the oil market spillover on oil-exporting markets more than oil-importing markets in terms of both returns and volatilities, especially oil market had a high impact on Canada. Moreover, stock market in Canada had dominant spillover on other markets. We conjecture that Brent oil market indirect spillover on other countries through Canada. Finally, the result shows that the dynamics of return and volatility spillovers burst significantly during the major events.