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Dynamic transmission mechanisms in global crude oil prices: Estimation and implications

Author:
Zhang, Dayong, Ji, Qiang, Kutan, Ali M.
Source:
Energy 2019 v.175 pp. 1181-1193
ISSN:
0360-5442
Subject:
energy costs, markets, models, oils, petroleum, prices, risk, United Arab Emirates
Abstract:
This study examines the dynamic behavior and spillover effects in global crude oil markets by introducing a connectedness measure based on the vector autoregressive model. Seven major crude oil prices are selected for the analysis on return and volatility connectedness and used to investigate information spillover and their dynamic linkages. Our empirical results suggest that the degree of market integration in global crude oil markets remains high over time although the total connectedness of the whole system varies substantially. In the international crude oil market, each price has shown to made distinctive contributions to the information flow of return and volatility networks. Specifically, the Brent and Bonny prices have played leading roles in explaining return dynamics over the whole sample, whereas the Dubai price has the highest hierarchy in the volatility transmission mechanism. In both the return and volatility networks, Asian oil prices are net receivers in the international oil market. Our findings shed light on global imbalance in the crude oil market pricing system, such as understanding the Asian Premium, and have important implications for forming portfolios to hedge oil market risks.
Agid:
6366815