An Empirical Analysis of Oil and Stock Markets’ Volatility Based on the DGC-MSV-t Model

Abstract

We investigate the spillover effect between crude oil future prices, crude oil spot prices, and stock index by using the multivariate stochastic volatility model. These tests between each market show the significant Granger causes of spillover effect. More and more evidences show that the crude oil price has been affected by other financial markets. The oil future played an important role in the energy market. WTI and Brent oil future have more spillover effect than INE oil future. The result shows that S&P stock market is more sensitive to the oil price than Shanghai stock market. The cross-market spillover effect we found can give some advices for the investor of oil and stock market. DIC test shows that DGC-MSV-t is considered effective and more accurate.