Structural changes and volatility transmission in crude oil markets

Sang Hoon Kang; Chongcheul Cheong; Seong Min Yoon

doi:10.1016/j.physa.2011.06.056

Structural changes and volatility transmission in crude oil markets

Sang Hoon Kang, Chongcheul Cheong, Seong Min Yoon^*

^*Corresponding author for this work

International Business School Suzhou

Pusan National University

Research output: Contribution to journal › Article › peer-review

54 Citations (Scopus)

Abstract

This study examines the influence of structural changes in volatility on the transmission of information in two crude oil prices. In an effort to assess the impact of these structural changes, we first identify the time points at which structural changes in volatility occurred using the ICSS algorithm, and then incorporate this information into our volatility modeling. From the estimation results using a bi-variate GARCH framework with and without structural change dummies, we find that the degree of persistence of volatility can be reduced via the incorporation of these structural changes in the volatility model. In this direction, we conclude that ignoring structural changes may distort the direction of information inflow and volatility transmission between crude oil markets.

Original language	English
Pages (from-to)	4317-4324
Number of pages	8
Journal	Physica A: Statistical Mechanics and its Applications
Volume	390
Issue number	23-24
DOIs	https://doi.org/10.1016/j.physa.2011.06.056
Publication status	Published - 1 Nov 2011

Keywords

ICSS algorithm
Information transmission
Long memory
Persistence
Spillover effect

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10.1016/j.physa.2011.06.056

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title = "Structural changes and volatility transmission in crude oil markets",

abstract = "This study examines the influence of structural changes in volatility on the transmission of information in two crude oil prices. In an effort to assess the impact of these structural changes, we first identify the time points at which structural changes in volatility occurred using the ICSS algorithm, and then incorporate this information into our volatility modeling. From the estimation results using a bi-variate GARCH framework with and without structural change dummies, we find that the degree of persistence of volatility can be reduced via the incorporation of these structural changes in the volatility model. In this direction, we conclude that ignoring structural changes may distort the direction of information inflow and volatility transmission between crude oil markets.",

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AU - Kang, Sang Hoon

AU - Cheong, Chongcheul

AU - Yoon, Seong Min

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N2 - This study examines the influence of structural changes in volatility on the transmission of information in two crude oil prices. In an effort to assess the impact of these structural changes, we first identify the time points at which structural changes in volatility occurred using the ICSS algorithm, and then incorporate this information into our volatility modeling. From the estimation results using a bi-variate GARCH framework with and without structural change dummies, we find that the degree of persistence of volatility can be reduced via the incorporation of these structural changes in the volatility model. In this direction, we conclude that ignoring structural changes may distort the direction of information inflow and volatility transmission between crude oil markets.

AB - This study examines the influence of structural changes in volatility on the transmission of information in two crude oil prices. In an effort to assess the impact of these structural changes, we first identify the time points at which structural changes in volatility occurred using the ICSS algorithm, and then incorporate this information into our volatility modeling. From the estimation results using a bi-variate GARCH framework with and without structural change dummies, we find that the degree of persistence of volatility can be reduced via the incorporation of these structural changes in the volatility model. In this direction, we conclude that ignoring structural changes may distort the direction of information inflow and volatility transmission between crude oil markets.

KW - ICSS algorithm

KW - Information transmission

KW - Long memory

KW - Persistence

KW - Spillover effect

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JO - Physica A: Statistical Mechanics and its Applications

JF - Physica A: Statistical Mechanics and its Applications

IS - 23-24

ER -

Structural changes and volatility transmission in crude oil markets

Abstract

Keywords

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