Revisiting Spillover Effect: An Empirical Evidence from GARCH-ARMA Approach

  • Andrian Dolfriandra Huruta Chung Yuan Christian University https://orcid.org/0000-0001-7676-5294
  • Hans Hananto Andreas Chung Yuan Christian University
  • Roberto Louis Forestal Chung Yuan Christian University
  • Anboli Elangovan Chung Yuan Christian University
  • John Francis Diaz Asian Institute of Management
Keywords: GARCH-ARMA, S&P 500, EUR/USD, Oil, Gold

Abstract


This study analyzes the spillover effect of markets' commodity, exchange rate, and stock price. Starting from July 1, 2009, the daily data to December 31, 2019, are conducted in our study. The GARCH-ARMA approach has been undertaken in this study. The results show that four pairs experience the unidirectional (positive) spillover effect of return. Yet, the spillover effect of volatility shows a two-way relationship (both positive and negative) between commodity markets, stock prices, and exchange rates. To conclude, both stock prices and gold are volatility's net transmitters to other markets, while the EURUSD market is some markets' net receiver of volatility.

References

Antonakakis, N., & Kizys, R. (2015). Dynamic spillovers between commodity and

currency markets. International Review of Financial Analysis, 41, 303–319.

https://doi.org/10.1016/j.irfa.2015.01.016

Arfaoui, M., & Rejeb, A. B. (2017). Oil, gold, U.S. dollar and stock market

interdependencies: a global analytical insight. European Journal of Management

and Business Economics, 26(3), 278–293. https://doi.org/10.1108/EJMBE-10-

-016

Bastianin, A., Conti, F., & Manera, M. (2016). The impacts of oil price shocks on stock

market volatility: Evidence from the G7 countries. Energy Policy, 98, 160–169.

https://doi.org/10.1016/j.enpol.2016.08.020

Bouri, E. (2015). Return and volatility linkages between oil prices and the Lebanese

stock market in crisis periods. Energy, XXX, 1–7.

https://doi.org/10.1016/j.energy.2015.05.121

Cevik, N. K., Cevik, E. I., & Dibooglu, S. (2020). Oil prices, stock market returns and

volatility spillovers: Evidence from Turkey. Journal of Policy Modeling, In press,

–24. https://doi.org/10.1016/j.jpolmod.2020.01.006

Chen, J.-H., & Huang, C.-Y. (2010). An analysis of the spillover effects of exchangetraded funds. Applied Economics, 42(9), 1155–1168.

https://doi.org/10.1080/00036840701721182

Contuk, F. Y., Burucu, H., & Güngör, B. (2013). Oil Prices, Stock Market Returns and

Volatility Spillovers: Evidence from Turkey. International Journal of Economics

and Finance Studies, 5(1), 119–140.

Drachal, K. (2018). Exchange rate and oil price interactions in selected CEE countries.

Economies, 6(2), 1–21. https://doi.org/10.3390/economies6020031

Gokmenoglu, K. K., & Fazlollahi, N. (2015). The Interactions among Gold, Oil, and Stock

Market: Evidence from S&P500. Procedia Economics and Finance, 25, 478–488.

https://doi.org/10.1016/s2212-5671(15)00760-1

He, X., Takiguchi, T., Nakajima, T., & Hamori, S. (2020). Spillover effects between

energies, gold, and stock: the United States versus China. Energy and

Environment, 0(0), 1–32. https://doi.org/10.1177/0958305X20907081

Ji, Q., Liu, B. Y., Zhao, W. L., & Fan, Y. (2018). Modelling dynamic dependence and risk

spillover between all oil price shocks and stock market returns in the BRICS.

International Review of Financial Analysis, 1–35.

https://doi.org/10.1016/j.irfa.2018.08.002

Katusiime, L. (2019). Investigating spillover effects between foreign exchange rate

volatility and commodity price volatility in Uganda. Economies, 7(1), 1–17.

https://doi.org/10.3390/economies7010001

Kumar, D. (2014). Return and volatility transmission between gold and stock sectors:

Application of portfolio management and hedging effectiveness. IIMB

Management Review, 26(1), 5–16. https://doi.org/10.1016/j.iimb.2013.12.002

Malik, F., & Hammoudeh, S. (2007). Shock and volatility transmission in the oil, U.S.

and Gulf equity markets. International Review of Economics and Finance, 16(3),

–368. https://doi.org/10.1016/j.iref.2005.05.005

Mikhaylov, A. Y. (2018). Volatility spillover effect between stock and exchange rate in oil

exporting countries. International Journal of Energy Economics and Policy, 8(3),

–326.

Morema, K., & Bonga-Bonga, L. (2018). The impact of oil and gold price fluctuations on

the South African equity market: volatility spillovers and implications for portfolio

management. In Munich Personal RePec Archive (Issue 87637).

https://doi.org/10.1227/01.NEU.0000349921.14519.2A

Narayan, P. K., & Narayan, S. (2010). Modelling the impact of oil prices on Vietnam's

stock prices. Applied Energy, 87(1), 356–361.

https://doi.org/10.1016/j.apenergy.2009.05.037

Sadorsky, P. (2014). Modeling volatility and correlations between emerging market

stock prices and the prices of copper, oil and wheat. Energy Economics, 43, 72–

https://doi.org/10.1016/j.eneco.2014.02.014

Samanta, S. K., & Zadeh, A. H. M. (2012). Co-movements of Oil, Gold, the U.S. Dollar,

and Stocks. Modern Economy, 3, 111–117.

https://doi.org/10.4236/me.2012.31015

Vivian, A., & Wohar, M. E. (2012). Commodity volatility breaks. Journal of International

Financial Markets, Institutions and Money, 22(2), 395–422.

https://doi.org/10.1016/j.intfin.2011.12.003

Published
2021/04/13
Section
Original Scientific Paper