Abstract:
This paper examines whether there is a volatility transmission between oil prices and financial stress by means of the volatility spillover test. We employ
WTI crude oil prices and Cleveland financial stress index for the period 1991–2014 and divide the sample into pre-crisis, in-crisis, and post-crisis periods
due to the downward trend in oil price in 2008. The volatility model estimations indicate that oil prices and financial stress index are dominated by longrun
volatility. The volatility spillover causality test supports evidence on risk transfer from oil prices to financial stress before the crisis and from financial
stress to oil prices after the crisis. The impulse response analysis shows that the volatility transmission pattern has similar dynamics before and after the
crisis and is characterized by higher and long-lived effects during the crisis. Our results have implications for both policy makers and investors, and for
future work.
