Volatility Transmissions and Hedging Between Petroleum and Equity Market Sectors: Insights from Petroleum Exporters and Importers

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Authors: Miramir Bagirov, Cesário Mateus
Cited by: 1
References: 39

Abstract

This study investigates the return and volatility transmissions between petroleum prices and stock sector indices of 7 net petroleum-exporting and 19 net petroleum-importing countries over the period from January 2005 to September 2018. Given that indices representing sectors of most considered countries are not available, a unique approach is implemented to manually construct sector indices using daily data of 5768 stocks listed in 10 sectors. The VAR-GARCH model is applied that allows to capture bilateral volatility interactions. Furthermore, the estimates of the model are employed to analyse optimal portfolio holdings and hedge ratios. The findings reveal significant volatility transmissions between petroleum prices and stock sector indices of exporters and importers. However, the direction and magnitude of spillover effects are country- and sector-specific. The optimal portfolio weights and hedge ratios indicate that sector indices of Saudi Arabia (net exporter) and China (net importer) offer better opportunities with respect to hedging petroleum price risks.

Fields of Study & Subjects

Market Dynamics and Volatility Financial Risk and Volatility Modeling Risk Management in Financial Firms

Publication details

Journal / source
Journal of risk and financial management
Publisher
MDPI AG
Volume
19
Issue
1
Pages
40–40
Publication date
6 January 2026
Language
EN