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

Authors

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

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 JEL Classifications: C22; G1; N7

Downloads

Download data is not yet available.

Author Biography

Yen-Hsien Lee

Department of Finance

Downloads

Published

2014-05-31

How to Cite

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. Retrieved from https://econjournals.com/index.php/ijeep/article/view/837

Issue

Vol. 4 No. 3 (2014)

Section

Articles

License

Submission of an article implies that the work described has not been published previously , that it is not under consideration for publication elsewhere, that its publication is approved by all authors and tacitly or explicitly by the responsible authorities where the work was carried out, and that, if accepted, will not be published elsewhere in the same form, without the written consent of the Publisher. The Editors reserve the right to edit or otherwise alter all contributions, but authors will receive proofs for approval before publication.