Volatility spillovers for energy prices: A diagonal BEKK approach

We examine the relationship between return and volatility as well as the covolatility spillover for energy, foreign currency, and stock markets using the diagonal BEKK model. Using daily crude oil, natural gas, and the coal prices as proxies for energy prices, the S&P500 index as a proxy for the U.S. stock market, and the EUR/USD exchange rate as a proxy for the exchange rate, we find robust evidence for the volatility spillover effects among the three markets. Also, in the 16 out of 20 pairwise relationships in the five markets, there are significant negative covolatility spillover effects. In the four pairs involving coal, there are positive and significant covolatility spillover effects. We conclude that the energy markets and the stock market have stronger covolatility spillovers than others.