chapter  28
16 Pages

Volatility spillovers on oil and forex markets

WithJozef Baruník, Evžen Kočenda

We analyze the extent of volatility spillovers on the oil and forex markets during 2007–2014. By employing high-frequency intraday data we compute three types of connectedness: total, asymmetric, and frequency one. Methodologically, we extend the Diebold-Yilmaz spillover index in two ways to account for asymmetric and frequency connectedness. Empirically, we show that total connectedness of the oil and forex markets over the researched period is lower than the total connectedness of the forex market itself. Further, in terms of asymmetries we show that bad volatility dominates connectedness on the forex market during much of the analyzed period. However, when we measure connectedness on both oil and forex markets the dominance reverses in favor of the good volatility. Finally, the extent of frequency connectedness substantially differs with respect to the shorter and longer horizons. While shorter-term connectedness is usually low over the whole researched period, the long-term connectedness sharply rises during the global financial crisis and European sovereign debt crisis.