Structural changes and volatility transmission in crude oil markets
AbstractThis study examines the influence of structural changes in volatility on the transmission of information in two crude oil prices. In an effort to assess the impact of these structural changes, we first identify the time points at which structural changes in volatility occurred using the ICSS algorithm, and then incorporate this information into our volatility modeling. From the estimation results using a bi-variate GARCH framework with and without structural change dummies, we find that the degree of persistence of volatility can be reduced via the incorporation of these structural changes in the volatility model. In this direction, we conclude that ignoring structural changes may distort the direction of information inflow and volatility transmission between crude oil markets.
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Bibliographic InfoArticle provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.
Volume (Year): 390 (2011)
Issue (Month): 23 ()
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Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/
ICSS algorithm; Information transmission; Long memory; Persistence; Spillover effect;
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