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Examining the spillover effects of volatile oil prices on Iran’s stock market using wavelet-based multivariate GARCH model

Author

Listed:
  • Siab Mamipour

    (Kharazmi University)

  • Sanaz Yazdani

    (Semnan University)

  • Elmira Sepehri

    (Department of Economics, York University)

Abstract

Fluctuations in the oil market can significantly influence various sectors of the economy, such as the stock markets of countries that rely heavily on oil revenues. Oil prices are one of the key influential external factors affecting the stock exchange index of oil-dependent Iran. This paper investigates the spillover effects of oil prices on Iran’s stock exchange index weekly from March 2009 to March 2020. Using a time-series wavelet decomposition approach, a series of OPEC oil prices and Iran’s total stock market index were decomposed into various time scales (4 levels) to analyze oil market spillover into the stock market using the multivariate GARCH TBEKK model. The results confirmed that volatility spillover from the oil to the stock market occurred in all the time scales (short, medium, and long term). However, the spillover in the long term is more pronounced than over the short, demonstrating that stock market volatility is strongly influenced by long-term exogenous oil price fluctuations. Hence, oil market shocks are one of the influential factors affecting stock market turbulence in Iran.

Suggested Citation

  • Siab Mamipour & Sanaz Yazdani & Elmira Sepehri, 2022. "Examining the spillover effects of volatile oil prices on Iran’s stock market using wavelet-based multivariate GARCH model," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 46(4), pages 785-801, October.
    • Handle: RePEc:spr:jecfin:v:46:y:2022:i:4:d:10.1007_s12197-022-09587-7
    DOI: 10.1007/s12197-022-09587-7
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    More about this item

    Keywords

    Volatility Spillover; Stock Market; Oil Prices; Wavelet Transformation; Multivariate GARCH Model;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q34 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Natural Resources and Domestic and International Conflicts

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