Professional Documents
Culture Documents
Final Paper - Oil Prices
Final Paper - Oil Prices
Abstract: The study investigates the presence of leverage effect i.e. the relationship between
return and volatility focusing on stock returns and exchange rate of BRICS economies caused by
crude oil prices shocks. To estimate good & bad news effect on these variables for pre, during
and after financial crises of 2007, EGARCH & GJR-GARCH models have been applied. The
empirical evidence reveals that the leverage effect appears to capture a significant part of
volatility asymmetric behavior caused by oil price shocks. This validates the presence of
leverage hypothesis. Performance of fore mentioned models is also compared on the basis of
AIC SIC and HQ minimum value criteria in which GJR-GARCH outperforms the EGARCH
model. After investigating the asymmetric volatility the findings can help to hedge the risk and
diversify the portfolio between these two variables.
Keywords:
Asymmetric Volatility, Oil Price Shocks, Stock Returns, Exchange Rate, BRICS, Financial
Crisis and Leverage Effect
1. Introduction:
Despite the constant shift to alternative sources of energy, oil still comprises the large portion of
energy worldwide (EIA March 2016). Increased economic activities like industrial production,
transportation and agriculture portray the economic growth of an economy. As the countries
unrbanize and modernazie their demand for oil increases significantly. Countries experiencing
rapid economic growth for example in 2007 China’s economy expanded by an eye-popping
14.2%, India managed 10.1% growth, Russia 8.5%, and Brazil 6.1% and dramatically increased
their demand for oil (Goldman Sachs, 2016). In resulting, crude oil is debatably one of the most
crucial commodities for the functioning of world trade and global economy.
Due to this much dependence of economy on oil as energy, the changes in oil prices have a
consequential effects on macroeconomic variables and financial markets globally, particularly
the foreign exchange markets (Atems et al. 2015, Mensi et al. 2015). The important fact is that
crude oil is mostly traded in US$ and this fact provides linkages between crude oil prices and
exchange rate the large portion of the international transactions of crude oil is denominated in
U.S. dollars. Thus, oil price changes induce the inflow (or outflow) of oil dollars, which will
directly affect the exchange rate of an oil-exporting or oil-importing country with the U.S.
dollars (Kim et al. 2012, Aloui et al. 2013, Mensi et al. 2015, Bouoiyour et al. 2015). Crude oil
prices and exchange rates are also linked in other ways too, for example, change of demand and
supply side of non-tradable goods and disposable income due to oil prices can lead to change in
exchange rates (for details see Beckmann et.al 2015, Shahbaz et.al. 2015). Commonly news
arrival in asset market induces volatility rather than resolving the uncertainty (Shi et al. 2015). It
is also common believed that asset volatility responds differently to the bad news as compare to
good news, more specifically negative shocks induces more volatility in assets returns than
positive shocks (Kristoufek, 2014), means asset volatility exhibits asymmetric behavior. So news
related to oil prices can induce asymmetry in exchange rate volatility.
As crude oil is highly important to economy, it can be expected that there is a linkage between
oil prices and stock markets, companies which use oil as factor of production, their earnings can
be affected by fluctuating oil prices (Le and Chang, 2015). In recent years, there is growing body
of literature which found significant links between crude oil and stock market returns (see for
example, Kilian and Park 2009, Odusami 2009, Chang and Che 2011, Filis et al. 2011, Soucek
and Todorova 2013, Ciner 2013, Cunado and Gracia 2014, Ajmi et Al. 2014, Zhu et al. 2015,
Jammazi and Nguyen 2015, Xu 2015, DU and He 2015). Oil is a form of energy which serves as
life blood for the development of economy; growing oil prices affect the economies directly by
effecting the production of goods and services. Since 1973 crude oil is a commodity which faced
many price fluctuations (Bouoiyour et al. 2015), and in the light of relation explained above any
news related to crude oil prices can disturb the volatility of stock market. The question is what is
the cause due to which stock returns show asymmetric behavior, the most popular explanation in
literature for this is leverage effect (Long et al. 2014, Christensen and Kristoufek 2014,
Christensen et al. 2015). Initially, Black (1976) discusses a relationship between volatility and
returns of stocks. This negative relationship is based on an argument that due high debt to equity
ratio the returns of the company’s stock decreases in response to that volatility increases which is
termed as leverage effect. Certainly negative news is responsible for negative returns by driving
the prices down, thus traded assets exhibits leverage effect as natural characteristics. Leverage
effect and asymmetric volatility are interchangeably used and often hard to distinguish, as
asymmetric volatility is also recognized by low volatility with growing market (Bullish) and high
volatility with declining market (Bearish) (Kristoufek 2014, Christensen et al. 2015).
Few studies have been conducted on different economies for modeling the stock market
asymmetric volatility in South Asia (for example, Kaur 2002, 2004, Pandey 2005, Karmakar
2007, Bahadur 2008). Moreover, Alberg et al. (2008) studied the Tal Aviv stock exchange
(TASE) indices and reported that significant asymmetry coefficients similarly, Saeidi and
Koohsarian (2010) conducted study on monthly stock market index of Iranian stock market and
argued that asymmetry of volatility and leverage effects are present. Lin et al. (2008) argued that
Indian stock market responds asymmetrically to oil prices. Huang (2009) examined major Asian
stock markets, including the Japan, South Korea, and Taiwan’s stock markets, and found
leverage effect by applying general stochastic volatility model. Cheong (2009) conducted study
on both WTI and Brent crude oil markets by using GARCH specification. The results exposed
that volatility is more persistent in WTI than the Brent crude oil, and leverage effect is present in
the Brent market. Over last few years, modeling the volatility of stock returns attracted the
attention of many researchers who concluded that financial time series exhibits volatility
clustering skewness and kurtosis (put references here). Bollerslev (1986) and Engle (1982)
Introduced Generalized autoregressive Hetroskedasticity models (GARCH) to capture these
stylized facts of financial time series but despite of popularity these models fail to capture
asymmetric behavior (Koulakiotis et al. 2015). The reason is that, the volatility is symmetric i.e.
good and bad news contribute to volatility. The asymmetric responses of volatility to bad and
good news are accommodated by more improved form GARCH series which include
Exponential GARCH (EGARCH) of Nelson (1991) and the threshold GARCH by Glosten et al.
(1993) (GJR-GARCH). Liu and Hung (2010) argued that GJR-GARCH model obtains the most
accurate volatility forecasts and modeling asymmetric component is much more important for
improving the volatility forecasts of financial returns in the presence of fat-tails, leptokurtosis,
skewness and the leverage effect (put references here). Many authors used different GARCH
with various volatility specification models to capture the asymmetric behavior and argued about
their predictive ability for example some studies have found evidence in support of the
Quadratic- GARCH model (Engle and Ng, 1993) for stock returns volatility predictions (Franses
and van Dijk 1996, Wei 2002). Furthermore, Brailsford and Faff (1996) and Taylor (2004) found
evidence supporting GJR-GARCH model but Heynen and Kat (1994), Chong et al. (1999),
Loudon et al. (2000) validated that EGARCH model achieves superior performance in predicting
stock market volatility. Furthermore, Awartani and Corradi (2005) and Evans and McMillan
(2007) concluded that GARCH models have flexibility for asymmetries in volatility produce
more good volatility predictions. Overall, we note that asymmetries play a crucial role in
volatility forecasting. For emerging stock market data, Gokcan (2000) argued that if the stock
market return exhibit skewed distributions then linear GARCH model cannot cope with such
problem, to deal with such problem non linear GARCH models such as EGARCH and GJR-
GARCH are introduced. These mixed results motivated the researchers to use the fresh data of
stock returns and exchange rates from BRICS economies (as these economies are highly growing
and thus effected by oil prices) and check the asymmetric volatility of these variables in response
to crude oil prices. For this purpose EGARCH, GJR-GARCH models are used and their
performance is evaluated on the basis of AIC, SIC and HQ minimum values criteria.
where I is the indicator variable, if ε t-1<0 I=1 and the effect of ε2 t-1 shock on ht is = (α1+ λ1)ε2t-1 &
if ε t-1>0 I=0 and the effect of ε2 t-1 shock on ht is = α1ε2t-1. In the end to evaluate the model
performance AIC, SIC & HQ techniques are applied (Javed and Mantalos, 2013).
After analyzing all results for exchange rate for all economies it is found that EGARCH & GJR-
GARCH are have the ability to capture asymmetric aspect of the volatility in exchange rates, oil
prices have significant effect on the exchange rates, results are consistent with Chowdhury and
Ratan (2012), Narayan et al. (2008). In case of stock returns oil prices have significant effect on
stock returns for all economies, EGARCH & GJR-GARCH are also successful to capture
leverage effect for all economies, past volatility have the significant effect on the present
volatility same results are supported by Kayani et al. (2014), Almeida and Hotta (2014) and, Bal
and Rath (2015).
GJR-GARCH is different from EGARCH in a sense its only allow for bad news effect. Mean
equation is same for both models i.e. mean equation shows the impact of past mean stock returns
on present mean return in case of stock returns. As per results of mean equation in case of stock
returns past mean stock returns are affecting present mean stock returns. Oil prices are impacting
following variables mean stock returns JSE before crisis and after crisis as shown in Table-7 and
Table-8, RTS during crisis and after crisis, SSE after crisis Table-9. According to variance
equation GJR-GARCH which tells about the impact of ARCH or leverage effect term, GARCH
term and oil prices on present volatility of stock returns λ1 the leverage effect, if λ1 is > 0 bad
news is generating more volatility. In cases where model captured the leverage effect λ 1 was
greater than 0 means negative news was generating more volatility but in some cases variables
showed the opposite sign i.e. λ1 <0 for example in Table-7 and Table-9, JSE before crisis -0.19
(0.001) and after crisis -6.2 (0.000). β1 is the GARCH term is significant for all cases except for
BMF and BSE during crisis as shown in Table-8. α 2 is oil price coefficient which is significant
for all cases except for following variables BMF for all three periods 0.989, 0.658 and 0.989 as
shown in (Table-4, Table-5, Table-6).
In case of exchange rates where model captured the asymmetric effect λ 1 was greater than 0
means negative news was generating more volatility but in some cases variables showed the
opposite sign i.e. λ1 <0 BRL before -0.31 (0.00) and after crisis -0.08 (0.00), RUBLE before
crisis -0.104 (0.0002) and ZAR after crisis -0.129 (0.04), presented in Table 10-11-12. β1 is the
GARCH term which is significant for all cases except for INR during crisis (0.482) and ZAR
before crisis (0.179). α2 is oil price coefficient which is significant for all cases except for INR in
all three periods, BRL and ZAR before crisis and RUBLE after crisis 0.325, 0.845 & 0.99
respectively, results are presented in Table-11 & 12 at appendix. After analyzing the overall
results it’s found that both models are able to capture asymmetric behavior of volatility in
exchange rate and stock returns. In case of exchange rate the results are consistent with following
authors, Narayan et al. (2008) who used EGARCH model to found asymmetric effect caused by
oil prices in Fijian Dollar-US Dollar exchange rate, Ayodeji (2009) who found out significant
asymmetric effect in Naira/Dollar exchange rate by using GJR-GARCH model. In case of stock
returns results are supported by following authors, Kayani et al. (2014) who used EGARCH
model to capture the leverage effect in stock returns of emerging economies and Almeida and
Hotta (2014) who used EGARCH & GJR –GARCH models to find out leverage effect in
Brazilian stock market.
The empirical results also suggest that how oil prices can impact some of the BRICS stock
markets and exchange rates and other remain safe from impact of oil prices which can be
beneficial for portfolio diversification. Portfolio investors can invest in those stock markets
currencies which show no or weak impacts of oil price fluctuations in time of high oil price
volatility. Portfolio investors and risk managers can use this kind of information for diversifying
within securities like within stocks or within currencies or across securities like stock and
currency across.
References
Ajmi, A. N., El-montasser, G., Hammoudeh, S. and Nguyen, D. K. (2014). Oil prices and MENA
stock markets: New evidence from nonlinear and asymmetric causalities during and after
the crisis period. Applied Economics, 46(18), 2167-2177.
Alberg, D., Shalit, H. and Yosef, R. (2008). Estimating stock market volatility using asymmetric
GARCH models. Applied Financial Economics, 18(15), 1201-1208.
Aloui, R., Aïssa, M. S. B. and Nguyen, D. K. (2013). Conditional dependence structure between
oil prices and exchange rates: a copula-GARCH approach. Journal of International Money
and Finance, 32, 719-738.
Atems, B., Kapper, D. and Lam, E. (2015). Do exchange rates respond asymmetrically to shocks
in the crude oil market? Energy Economics, 49, 227-238.
Bal, D. P. and Rath, B. N. (2015). Nonlinear causality between crude oil price and exchange rate:
A comparative study of China and India. Energy Economics, 51, 149-156.
Basher, S.A. and Sadorsky, P. (2006). Oil price risk and emerging stock markets. Glob. Finance.
J. 17 (2), 224–251.
Beckmann, J., Berger, T. and Czudaj, R. (2015). Oil price and FX-rates dependency.
Quantitative Finance, 1-12.
Beg, A. R. A. and Anwar, S. (2014). Detecting volatility persistence in GARCH models in the
presence of the leverage effect. Quantitative Finance, 14(12), 2205-2213.
Bekaert, G. and Wu, G. (2000). Asymmetric volatility and risk in equity markets. Review of
Financial Studies, 13(1), 1-42.
Bohl, M. T. and Henke, H. (2003). Trading volume and stock market volatility: The Polish case.
International Review of Financial Analysis, 12(5), 513-525.
Bollerslev, T. (1986). Generalized autoregressive conditional heteroskedasticity. Journal of
econometrics, 31(3), 307-327.
Bollerslev, T. and Zhou, H. (2006). Volatility puzzles: a simple framework for gauging return-
volatility regressions. Journal of Econometrics, 131(1), 123-150.
Bouchaud, J. P. and Potters, M. (2001). More stylized facts of financial markets: leverage effect
and downside correlations. Physica A: Statistical Mechanics and its Applications, 299(1),
60-70.
Bouchaud, J. P., Matacz, A. and Potters, M. (2001). Leverage effect in financial markets: The
retarded volatility model. Physical review letters, 87(22), 228701.
Bouoiyour, J., Selmi, R., Tiwari, A. K. and Shahbaz, M. (2015). The nexus between oil price and
Russia's real exchange rate: Better paths via unconditional vs conditional analysis. Energy
Economics, 51, 54-66.
Chang, C. H. and Che, W. (2011). A empirical study of changes in international crude oil spot
price relationship between Taiwan stock prices. Journal of Information and Optimization
Sciences, 32(5), 1219-1227.
Chang, K. L. (2012). Volatility regimes, asymmetric basis effects and forecasting performance:
An empirical investigation of the WTI crude oil futures market. Energy Economics, 34(1),
294-306.
Chang, T. H. and Su, H. M. (2010). The substitutive effect of biofuels on fossil fuels in the lower
and higher crude oil price periods. Energy, 35(7), 2807-2813.
Cheong, C. W. (2009). Modeling and forecasting crude oil markets using ARCH-type models.
Energy policy, 37(6), 2346-2355.
Chkili, W., Hammoudeh, S. and Nguyen, D. K. (2014). Volatility forecasting and risk
management for commodity markets in the presence of asymmetry and long memory.
Energy Economics, 41, 1-18.
Choi, K. H., Jiang, Z. H., Kang, S. H. and Yoon, S. M. (2012). Relationship between trading
volume and asymmetric volatility in the Korean stock market. Modern Economy, 3(05),
584.
Christensen, B. J., Nielsen, M. Ø. and Zhu, J. (2015). The impact of financial crises on the risk–
return tradeoff and the leverage effect. Economic Modelling, 49, 407-418.
Christie, A. A. (1982). The stochastic behavior of common stock variances: Value, leverage and
interest rate effects. Journal of financial Economics, 10(4), 407-432.
Chuang, W. I., Liu, H. H. and Susmel, R. (2012). The bivariate GARCH approach to
investigating the relation between stock returns, trading volume, and return volatility.
Global Finance Journal, 23(1), 1-15.
Ciner, C. (2013). Oil and stock returns: frequency domain evidence. J. Int. Financ. Mark. Inst.
Money 23, 1–11.
Cunado, J. and de Gracia, F. P. (2014). Oil price shocks and stock market returns: Evidence for
some European countries. Energy Economics, 42, 365-377.
Du, L. and He, Y. (2015). Extreme risk spillovers between crude oil and stock markets. Energy
Economics, 51, 455-465.
Energy information administration March 2016
Engle, R. F. (1982). Autoregressive conditional heteroscedasticity with estimates of the variance
of United Kingdom inflation. Econometrica: Journal of the Econometric Society, 987-
1007.
Engle, R. F. and Ng, V. K. (1993). Measuring and testing the impact of news on volatility. The
journal of finance, 48(5), 1749-1778.
Fan, Y., Zhang, Y. J., Tsai, H. T. and Wei, Y. M. (2008). Estimating ‘Value at Risk’of crude oil
price and its spillover effect using the GED-GARCH approach. Energy Economics, 30(6),
3156-3171.
Filis, G., Degiannakis, S. and Floros, C. (2011). Dynamic correlation between stock market and
oil price: the case of oil-importing and oil-exporting countries. Int. Rev. Finance. Anal. 20,
152–164.
GC, S. B. (2008). Volatility analysis of Nepalese stock market. Journal of Nepalese Business
Studies, 5(1), 76-84
Glosten, L. R., Jagannathan, R. and Runkle, D. E. (1993). On the relation between the expected
value and the volatility of the nominal excess return on stocks. The journal of finance,
48(5), 1779-1801.
Huang, S. C. (2009). Domestic and international leverage effects of major Asian stock markets
based on stochastic volatility models. Journal of Statistics and Management Systems,
12(1), 79-91.
Huang, S., An, H., Gao, X., & Sun, X. (2016). Do oil price asymmetric effects on the stock
market persist in multiple time horizons?. Applied Energy
Huang, S., An, H., Gao, X., Wen, S., & Hao, X. (2016). The multiscale impact of exchange rates
on the oil-stock nexus: Evidence from China and Russia. Applied Energy.
Jammazi, R. and Nguyen, D. K. (2015). Responses of international stock markets to oil price
surges: a regime-switching perspective. Applied Economics, 47(41), 4408-4422.
Javed, F. and Mantalos, P. (2013). GARCH-type models and performance of information
criteria. Communications in Statistics-Simulation and Computation, 42(8), 1917-1933.
Ji, Q. and Fan, Y. (2012). How does oil price volatility affect non-energy commodity markets?.
Applied Energy, 89(1), 273-280.
Karmakar, M. (2007). Asymmetric volatility and risk-return relationship in the Indian stock
market. South Asia Economic Journal, 8(1), 99-116.
Kaur, H. (2004). Time varying volatility in the Indian stock market. Vikalpa, 29(4), 25-42.
Kayani, G. M., Hui, X. and Gulzar, S. (2015). Dynamic Relationship between Stock Exchange
and Exchange Rate: a Case of Emerging Economies in Context of GFC.
Kilian, L. and Park, C. (2009). The impact of oil price shocks on the U.S. stock market. Int.
Econ. Rev. 50 (4), 1267–1287.
Koulakiotis, A., Babalos, V. and Papasyriopoulos, N. (2015). Liquidity matters after all:
Asymmetric news and stock market volatility before and after the global financial crisis.
Economics Letters, 127, 58-60.
Krishnamurti, C., Tian, G. G., Xu, M. and Li, G. (2013). No news is not good news: evidence
from the intra-day return volatility–volume relationship in Shanghai Stock Exchange.
Journal of the Asia Pacific Economy, 18(1), 149-167.
Kristjanpoller, W. D., & Concha, D. (2016). Impact of fuel price fluctuations on airline stock
returns. Applied Energy, 178, 496-504.
Kristoufek, L. (2014). Leverage effect in energy futures. Energy Economics, 45, 1-9.
Le, T. H. and Chang, Y. (2015). Effects of oil price shocks on the stock market performance: Do
nature of shocks and economies matter? Energy Economics, 51, 261-274.
Liu, H. C. and Hung, J. C. (2010). Forecasting S&P-100 stock index volatility: The role of
volatility asymmetry and distributional assumption in GARCH models. Expert Systems
with Applications, 37(7), 4928-4934.
Long, L., Tsui, A. K. and Zhang, Z. (2014). Conditional heteroscedasticity with leverage effect
in stock returns: Evidence from the Chinese stock market. Economic Modelling, 37, 89-102
Mensi, W., Hammoudeh, S. and Yoon, S. M. (2015). Structural breaks, dynamic correlations,
asymmetric volatility transmission, and hedging strategies for petroleum prices and USD
exchange rate. Energy Economics, 48, 46-60.
Mensi, W., Hammoudeh, S., and Yoon, S. M. (2015). Structural breaks, dynamic correlations,
asymmetric volatility transmission, and hedging strategies for petroleum prices and USD
exchange rate. Energy Economics, 48, 46-60.
Mensi, W., Hammoudeh, S., Nguyen, D. K. and Kang, S. H. (2015). Global financial crisis and
spillover effects among the US and BRICS stock markets. International Review of
Economics & Finance.
Mensi, W., Hammoudeh, S., Yoon, S. M. and Nguyen, D. K. (2016). Asymmetric Linkages
between BRICS Stock Returns and Country Risk Ratings: Evidence from Dynamic Panel
Threshold Models.
Nomikos, N. and Andriosopoulos, K. (2012). Modelling energy spot prices: Empirical evidence
from NYMEX. Energy Economics, 34(4), 1153-1169.
Odusami, B. O. (2009). Crude oil shocks and stock market returns. Applied financial economics,
19(4), 291-303.
Oskooe, S. A. P. and Shamsavari, A. (2011). Asymmetric Effects in Emerging Stock Markets-
The Case of Iran Stock Market. International Journal of Economics and Finance, 3(6), 16.
Pagan, A. (1996). The econometrics of financial markets. Journal of empirical finance, 3(1), 15-
102.
Pandey, A. (2005). Volatility models and their performance in Indian capital markets. Vikalpa,
30(2), 27.
Reboredo, J. (2012). Modelling oil price and exchange rate co-movements. Journal of Policy
Modeling 34, 419{440.
Saeidi, P. and Koohsari, A. (2010). The Investigation of the Relationship between Inflation
Indexes and Stock Return in Tehran Stock Exchange (In Farsi). Tahghighat-e-Eghtesadi,
44(89), 109
Salisu, A. A. and Fasanya, I. O. (2013). Modelling oil price volatility with structural breaks.
Energy Policy, 52, 554-562.
Shahbaz, M., Tiwari, A. K. and Tahir, M. I. (2015). Analyzing time–frequency relationship
between oil price and exchange rate in Pakistan through wavelets. Journal of Applied
Statistics, 42(4), 690-704.
Shi, Y., Ho, K. Y. and Liu, W. M. (2015). Public information arrival and stock return volatility:
Evidence from news sentiment and Markov Regime-Switching Approach. International
Review of Economics & Finance.
Soucek, M. and Todorova, N. (2013). Economic significance of oil price changes on Russian and
Chinese stock markets. Applied Financial Economics, 23(7), 561-571.
Suleman, M. T. (2012). Stock market reaction to good and bad political news. Asian Journal of
Finance & Accounting, 4(1), 299-312.
Tiwari, A. K., & Albulescu, C. T. (2016). Oil price and exchange rate in India: Fresh evidence
from continuous wavelet approach and asymmetric, multi-horizon Granger-causality tests.
Applied Energy, 179, 272-283.
Wu, G. (2001). The determinants of asymmetric volatility. Review of Financial Studies, 14(3),
837-859.
Xu, B. (2015). Oil prices and UK industry-level stock returns. Applied Economics, 47, 2608-
2627.
Zhu, H., Guo, Y. and You, W. (2015). An empirical research of crude oil price changes and
stock market in China: evidence from the structural breaks and quantile regression. Applied
Economics, 47(56), 6055-6074.
Appendix
Table 1
Pre Crises
Parameters Coeff. Prob. Coeff. Prob. Coeff. Prob. Coeff. Prob Coeff.Prob.
.
Estimate of the Mean
equation
C 0.00 0.321 -0.01 0.067 0.03 0.000 0.001 0.896 -0.004 0.555
R(OP) -0.00 0.038 1.00 0.000 1.00 0.000 0.998 0.000 1.001 0.000
R SR (t-1) 1.00 0.000 -0.00 0.807 -0.02 0.000 0.002 0.948 -0.003 0.133
Estimates of Variance
equation
α0 -1.12 0.000 -1.89 0.000 -1.47 0.000 -1.32 0.000 -0.395 0.001
λ1 0.10 0.001 0.19 0.000 0.02 0.058 0.163 0.000 0.142 0.000
α1 -0.15 0.000 -0.22 0.000 -0.06 0.007 -0.11 0.000 -0.018 0.084
β1 0.94 0.000 0.90 0.000 0.94 0.000 0.902 0.000 0.982 0.000
α2 0.25 0.001 0.44 0.001 0.49 0.000 0.131 0.047 0.063 0.036
Table 2
During Crises
Parameters Coeff. Prob. Coeff Prob. Coeff Prob.Coeff. Prob. Coeff Prob.
. . .
Estimate of the
Mean equation
C 0.135 0.000 0.054 0.411 0.105 0.024 0.289 0.000 0.103 0.218
R(OP) -0.003 0.362 0.991 0.000 0.938 0.000 0.842 0.000 0.974 0.000
R BSE(t-1) 0.973 0.000 -0.011 0.158 -0.004 0.774 0.081 0.000 -0.01 0.163
Estimates of
Variance equation
α0 -11.17 0.000 -13.46 0.004 -3.214 0.172 -1.080 0.000 -14.5 0.039
λ1 -0.804 0.000 -0.187 0.440 -0.243 0.207 -0.231 0.000 0.113 0.665
α1 0.084 0.448 0.373 0.002 -0.165 0.167 -0.165 0.000 -0.18 0.160
β1 0.002 0.989 -0.402 0.349 0.746 0.000 0.916 0.000 -0.06 0.911
α2 1.051 0.000 0.609 0.661 0.783 0.190 0.350 0.000 2.638 0.068
Table 3
After Crises
Parameters Coeff. Prob. Coeff. Prob. Coeff. Prob. Coeff. Prob. Coeff. Prob.
R(OP) -0.003 0.028 0.999 0.000 0.988 0.000 1.006 0.000 0.999 0.000
R JSE(t-1) 0.996 0.000 -0.002 0.242 0.036 0.000 0.004 0.004 -0.005 0.018
Estimates of
Variance equation
α0 -0.677 0.000 -1.477 0.000 -10.24 0.000 0.188 0.000 0.270 0.001
λ1 0.081 0.000 0.128 0.00 1.036 0.000 -0.004 0.204 0.228 0.000
α1 -0.084 0.000 -0.102 0.000 0.670 0.000 -0.089 0.000 -0.035 0.003
β1 0.958 0.000 0.817 0.000 0.249 0.000 0.992 0.000 0.926 0.000
α2 0.096 0.000 -0.301 0.001 1.287 0.000 -0.134 0.000 -0.612 0.000
Table 4
Pre Crises
Parameters Coeff. Prob. Coeff Prob. Coeff Prob. Coeff Prob. Coef Prob.
. . . f.
Estimate of the
Mean equation
C 0.014 0.000 - 0.63 - 0.331 0.005 0.33 0.004 0.01
0.000 0.002 2
R(OP) 0.99 0.000 1.000 0.000 1.007 0.000 0.99 0.00 0.99 0.00
0
R BRL(t-1) -0.005 0.000 - 0.38 0.001 0.000 -0.00 0.00 -1.00 0.986
0.001 1
Estimates of
Variance equation
α0 -2.87 0.000 - 0.000 -6.27 0.000 - 0.00 -9.87 0.000
29.63 16.60 0
λ1 0.58 0.000 0.123 0.084 0.52 0.000 0.10 0.00 0.64 0.000
0
α1 0.14 0.000 - 0.001 0.038 0.205 0.033 0.00 0.06 0.257
0.163 6
β1 0.792 0.000 -0.49 0.012 0.69 0.000 -0.90 0.00 0.19 0.014
0 0
α2 -0.073 0.674 2.86 0.000 0.88 0.000 -5.88 0.00 -0.09 0.773
0
Table 5
During Crises
Parameters Coeff. Prob. Coeff. Prob. Coeff. Prob. Coeff Prob. Coeff. Prob.
.
Estimate of the Mean
equation
C 0.09 0.00 0.10 0.000 0.06 0.000 ** ** ** **
R(OP) 0.86 0.00 0.87 0.000 0.95 0.000 ** ** ** **
R CNY(t-1) -0.02 0.00 -0.00 0.457 0.001 0.002 ** ** ** **
Estimates of
Variance equation
α0 -10.7 0.02 -14.7 0.000 -14.14 0.000 ** ** ** **
λ1 0.90 0.00 1.11 0.000 1.00 0.000 ** ** ** **
α1 0.26 0.09 -0.41 0.025 0.05 0.767 ** ** ** **
β1 0.46 0.03 0.35 0.001 0.18 0.307 ** ** ** **
α2 2.49 0.07 2.05 0.001 2.25 0.008 ** ** **
** represent that results during crises are not available as we found no ARCH effect for series so we will
not further continue it.
Table 6
After Crises
Parameters Coeff. Prob. Coeff. Prob. Coeff. Prob. Coeff. Prob. Coeff. Prob.
Estimate of the
Mean equation
C -0.001 0.257 0.002 0.000 -0.001 0.347 0.001 0.012 -0.001 0.424
R(OP) 1.001 0.000 0.99 0.000 1.00 0.000 0.99 0.000 1.002 0.000
R INR(t-1) 0.001 0.000 -0.001 0.000 -0.000 0.737 -0.001 0.195 -0.001 0.760
Estimates of
Variance equation
α0 -0.77 0.000 -4.08 0.000 -1.46 0.000 -1.48 0.000 -6.81 0.000
λ1 0.38 0.000 0.58 0.000 0.33 0.000 0.36 0.000 0.61 0.000
α1 0.06 0.000 0.04 0.025 0.03 0.042 0.09 0.000 0.09 0.017
β1 0.88 0.000 0.83 0.000 0.92 0.000 0.91 0.000 0.25 0.001
α2 -0.48 0.000 0.47 0.000 0.09 0.107 0.09 0.264 -1.39 0.264
Table 7
Pre Crises
Parameters Coeff. Prob. Coeff. Prob. Coeff Prob Coeff Prob. Coeff. Prob.
. . .
Estimate of the
Mean equation
C 0.010 0.764 0.011 0.684 0.047 0.00 0.005 0.209 0.013 0.359
0
R(OP) 1.001 0.000 1.001 0.000 1.008 0.00 0.997 0.000 1.001 0.000
0
R BMF(t-1) -0.007 0.414 -0.007 0.488 - 0.00 0.001 0.691 -0.002 0.139
0.035 0
Estimates of
Variance equation
α0 8.4E-6 0.484 6.5E-5 0.484 - 0.01 - 0.048 7.2E-5 0.442
9.5E- 1.1E-
5 5
α1 0.149 0.331 0.150 0.331 0.193 0.00 0.028 0.057 0.149 0.295
1
λ1 0.049 0.794 0.049 0.794 - 0.00 0.122 0.000 0.049 0.779
0.194 1
β1 0.599 0.019 0.599 0.019 0.872 0.00 0.817 0.000 0.599 0.027
0
α2 -8.8E- 0.989 -6.9E- 0.989 5.7E- 0.01 9.2E- 0.009 -5.9E- 0.991
6 7 5 0 6 7
Table 8
During Crises
Parameters Coeff. Prob. Coeff. Prob Coeff. Prob. Coeff. Prob. Coeff. Prob
. .
Estimate of the
Mean equation
C 0.169 0.02 0.055 0.49 0.062 0.182 0.202 0.000 0.110 0.13
5 7 2
R(OP) 0.966 0.00 0.990 0.00 0.961 0.000 0.873 0.000 0.972 0.00
0 0 0
R BSE(t-1) -0.009 0.09 -0.009 0.29 -0.002 0.831 0.082 0.000 -0.012 0.08
5 7 1
Estimates of
Variance
equation
α0 3.7E-5 0.65 0.001 0.60 9.5E-6 0.847 -0.001 0.000 -6.4E-5 0.42
8 3 5
α1 -0.117 0.00 -0.035 0.00 -0.093 0.021 -0.164 0.000 0.040 0.68
4 0 0
λ1 -0.071 0.33 -0.026 0.84 0.056 0.283 0.164 0.000 0.065 0.68
4 2 4
β1 0.412 0.20 0.603 0.44 1.020 0.000 1.011 0.000 0.713 0.00
8 8 5
α2 2.4E-5 0.65 -5.0E-5 0.62 -3.5E-7 0.991 0.000 0.000 4.8E-5 0.40
8 0 1
Table 9
After Crises
Parameters Coeff. Prob. Coeff Prob. Coeff. Prob. Coeff. Prob. Coeff. Prob.
.
Estimate of the
Mean equation
C 0.045 0.333 0.003 0.570 -0.039 0.000 0.056 0.000 0.020 0.038
R(OP) 0.991 0.000 0.999 0.000 0.990 0.000 0.972 0.000 0.997 0.000
R JSE(t-1) 0.002 0.585 0.000 0.749 0.029 0.000 0.012 0.000 -0.226 0.003
Estimates of
Variance
equation
α0 3.8E-5 0.517 12.35 0.000 0.001 0.000 0.000 0.000 8.0E- 0.000
5
α1 0.149 0.308 -8.63 0.000 6.328 0.000 -0.035 0.000 0.116 0.000
λ1 0.049 0.739 10.67 0.000 -6.211 0.000 0.180 0.000 0.097 0.000
β1 0.599 0.030 144.1 0.000 0.017 0.002 0.626 0.000 0.665 0.000
α2 -3.4E- 0.989 8.974 0.000 -6.3E-5 0.003 -0.000 0.000 -3.7E- 0.000
7 5
Table 10
Pre Crises
Parameters Coeff. Prob. Coeff. Prob. Coeff. Prob. Coeff. Prob. Coeff. Prob.
Estimate of the
Mean equation
C 0.009 0.002 0.001 0.902 -0.007 0.374 0.003 0.256 0.005 0.013
R(OP) 0.991 0.000 0.999 0.000 1.003 0.000 0.997 0.000 0.992 0.000
R BRL(t-1) -0.004 0.002 -0.000 0.618 0.001 0.128 -0.001 0.106 0.001 0.543
Estimates of
Variance
equation
α0 2.2E-6 0.059 2.1E-7 0.000 9.7E-7 0.484 7.8E-7 0.000 5.7E-6 0.162
α1 0.489 0.000 0.149 0.087 0.150 0.331 0.104 0.000 0.436 0.000
λ1 -0.315 0.000 0.049 0.639 0.050 0.794 -0.104 0.000 -0.105 0.256
β1 0.493 0.000 0.599 0.000 0.600 0.019 0.650 0.000 0.082 0.179
α2 -6.3E-7 0.325 -9.0E-8 0.000 -8.5E- 0.989 -3.3E- 0.000 -4.3E-7 0.845
9 7
Table 11
During Crises
Parameters Coeff. Prob. Coeff. Prob. Coeff. Prob. Coef Prob. Coef Prob.
f. f.
Estimate of the
Mean equation
C 0.0723 0.000 0.098890 0.000 0.077527 0.518 ** ** ** **
0 0 8
R(OP) 0.8830 0.000 0.881815 0.000 0.954826 0.000 ** ** ** **
0 0 0
R CNY(t-1) -0.0181 0.000 -0.00011 0.008 - 0.959 ** ** ** **
0 4 0.000320 6
Estimates of
Variance
equation
α0 -6.60E- 0.000 -2.90E-07 0.000 1.05E-05 0.805 ** ** ** **
05 0 0 9
α1 0.56065 0.008 0.149754 0.000 0.150000 0.748 ** ** ** **
1 6 9 7
λ1 - 0.166 0.050585 0.880 0.050000 0.923 ** ** ** **
0.34090 9 2 9
β1 0.40558 0.000 0.601026 0.000 0.599999 0.482 ** ** ** **
3 0 0 6
α2 4.37E- 0.000 1.89E-07 0.000 -1.24E- 0.995 ** ** ** **
05 0 0 07 2
** represent that results during crises are not available as we found no ARCH effect for series so we will
not further continue it.
Table 12
After Crises
Parameters Coeff. Prob. Coeff. Prob. Coeff. Prob. Coeff. Prob. Coeff. Prob.
Estimate of the
Mean equation
C -5.67E- 0.9676 0.001237 0.0001 - 0.817 0.00346 0.637 - 0.8136
05 0.00114 9 6 2 0.00042
R(OP) 1.00111 0.0000 0.998953 0.0000 1.00017 0.000 0.99861 0.000 1.00125 0.0000
3 0 6 0
R INR(t-1) - 0.8548 - 0.0091 0.00046 0.761 - 0.751 - 0.6166
0.000124 0.000215 8 4 0.00070 8 0.00038
7
Estimates of
Variance equation
α0 2.20E-06 0.0000 -4.05E- 0.0000 2.90E- 0.455 5.18E-06 0.456 1.22E- 0.0014
08 06 9 7 05
α1 0.179235 0.0000 0.267709 0.0000 0.15000 0.043 0.15000 0.004 0.42043 0.0000
0 9 0 0 9
λ1 - 0.0000 0.124489 0.0003 0.05000 0.694 0.05000 0.696 - 0.0444
0.089537 0 5 0 8 0.12946
β1 0.828529 0.0000 0.550209 0.0000 0.60000 0.002 0.60000 0.000 0.22349 0.0001
0 4 0 2 9
α2 -1.02E- 0.0001 2.86E-08 0.0000 -2.6E-08 0.989 -3.91E- 0.990 -4.8E-06 0.0113
06 2 08 9
Movement of Stock Markets, Exchange Rates of BRICS economies and oil prices (2005-2015)
especially in the financial crises of 2007-2008
India China
9 6.8
6.4
8
6.0
5.6
7
5.2
6 4.8
4.4
5
4.0
3.6
4
3.2
3 2.8
05 06 07 08 09 10 11 12 13 14 15 05 06 07 08 09 10 11 12 13 14 15
5
6
4
5
4
2
3
1
0 2
05 06 07 08 09 10 11 12 13 14 15 05 06 07 08 09 10 11 12 13 14 15
This Graph is showing the movement of Indian stock market (BSE), Chinese stock
market (SSE), South African stock market (JSE) and Russian trading System (RTS)
along with Indian Rupee to USD exchange rate (INR) in contrast with oil prices
(OP), Chinese yen to USD exchange rate (CNY) in contrast with oil prices (OP),
South African ZAR to USD exchange rate (ZAR) in contrast with oil prices (OP)
and the movement of and Russian Ruble to USD exchange rate (Ruble) in contrast
with oil prices (OP).