The impact of co-jumps in the oil sector

Author(s)

Laurini, Marcio Poletti ^[1] ; Mauad, Roberto Baltieri ^[2] ; Lucena Aiube, Fernando Antonio ^[3]

Affiliation

^[1] FEARP USP, Ave Bandeirantes 3900, BR-14040905 Ribeirao Preto, SP - Brazil

^[2] Cent Bank Brazil, Brasilia, DF - Brazil

^[3] Univ Estado Rio De Janeiro, Rio De Janeiro, RJ - Brazil

• Document type: Journal article
• Source: RESEARCH IN INTERNATIONAL BUSINESS AND FINANCE; v. 52, APR 2020.
• Web of Science Citations: 0

Abstract

We study the dynamics of the oil sector using a new multivariate stochastic volatility model with a structure of common factors subjected to jumps in mean and conditional variance. This model contributes to the literature allowing the estimation of spillover effects between assets in a multivariate framework through joint jumps (co-jumps), identifying the permanent and transitory effects through a structure defined by Bernoulli processes. The jump structure introduced in the article can be interpreted as a regime-switching model with an endogenous number of states, avoiding the difficulties associated with models with a fixed number of regimes. We apply the model to oil prices and stock prices of integrated oil companies. The jump structure allows dating the relevant events in the oil sector in the period 2000-2019. The period analyzed encompasses important events in the oil market such as the price escalation in 2008 and the falling prices in 2014. We also apply the model to estimate risk management measures and portfolio allocation and perform a comparison with other multivariate models of conditional volatility, showing the good properties of the model in these applications. (AU)

• FAPESP's process: 18/04654-9 - Time series, wavelets and high dimensional data
• Grantee: Pedro Alberto Morettin
• Support Opportunities: Research Projects - Thematic Grants