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The Effects of Oil Price Shocks on Stock Market Volatility: Evidence from European Data

Stavros Degiannakis, George Filis, and Renatas Kizys

Year: 2014
Volume: Volume 35
Number: Number 1
DOI: 10.5547/01956574.35.1.3
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Abstract:
The paper investigates the effects of oil price shocks on stock market volatility in Europe by focusing on three measures of volatility, i.e. the conditional, the realized and the implied volatility. The findings suggest that supply-side shocks and oil specific demand shocks do not affect volatility, whereas, oil price changes due to aggregate demand shocks lead to a reduction in stock market volatility. More specifically, the aggregate demand oil price shocks have a significant explanatory power on both current-and forward-looking volatilities. The results are qualitatively similar for the aggregate stock market volatility and the industrial sectors' volatilities. Finally, a robustness exercise using short-and long-run volatility models supports the findings.



What Should be Taken into Consideration when Forecasting Oil Implied Volatility Index?

Panagiotis Delis, Stavros Degiannakis, and Konstantinos Giannopoulos

Year: 2023
Volume: Volume 44
Number: Number 5
DOI: 10.5547/01956574.44.4.pdel
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Abstract:
This study forecasts the oil volatility index (OVX) incorporating information from other implied volatility (IV) indices. We provide evidence for the existence of long memory in the OVX in order to justify the use of the Heterogeneous AutoRegressive (HAR) model. We extend the HAR model by implementing a dynamic model averaging (DMA) method in order to allow for IV indices from other asset classes to be applicable at different time periods. Apart from the statistical evaluation, a straddle options trading strategy validates our results from an economic point of view. The IV of Dow Jones is highly significant for short- and mid-run forecasting horizons, whereas, at longer horizons, the IV of Energy Sector provides accurate forecasts but only from an economic point of view.





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