Time-varying co-movement and volatility transmission between the oil price and stock markets in the Baltics and four European countries

LTReikšminiai žodžiai: Oil price; Volatility transmission; Stock return; Oil shock; Dynamic conditional; Baltic stock markets.

ENThe paper explores time-varying co-movement and volatility transmission between three Baltic (Estonia, Latvia and Lithuania) stock markets and two international crude oil indices (Brent and West Texas Intermediate (WTI)). It also investigates the relation between two major oil-importing (the EU and the UK) and oil-exporting (Norway and Russia) European countries and the two oil indices. We use daily data from 3 January 2000 to 18 January 2016. The DCC-GARCH model was employed to account for the time-varying in this study, which yielded several important findings. We found that the Baltics have a positive albeit lower level of time-varying co-movement with the international oil markets. In addition, the results revealed that the impacts of oil shocks in the Baltics are also lower than in the other four European markets. However, this finding is contrary to the existing literature, which argues that the Baltics are integrated. Considering the time-varying and volatility transmission with the oil-importing and oil-exporting countries, we found that there exists high-level time-varying co-movement. We also found that the volatility transmission and the magnitude of shocks from the oil markets are higher in oil-exporting countries. This result has important implications, especially for international investors and oil companies seeking to benefit from risk diversification and hedging techniques. [From the publication]