Matteo Manera (Department of Statistics, University of Milan-Bicocca and Fondazione Eni Enrico Mattei) Massimo Giovannini (Department of Economics, Boston College) Margherita Grasso (Fondazione Eni Enrico Mattei) Alessandro Lanza (Eni S.p.A. and Fondazione Eni Enrico Mattei)
Additional information is available for the following
registered author(s):
The identification of the forces that drive stock returns and the dynamics of their associated volatilities is a major concern in empirical economics and finance. This analysis is particularly relevant for determining optimal hedging strategies based on whether shocks to the volatilities of returns of oil companies stock prices, relevant stock market indexes and oil spot and futures prices are high or low, and positively or negatively correlated. This paper investigates the correlations of volatilities in the stock price returns and their determinants for the most important integrated oil companies, namely Bp (BP), Chevron-Texaco (CVX), Eni (ENI), Exxon-Mobil (XOM), Royal Dutch (RD) and Total-Fina Elf (TFE). We measure the actual co-risk in stock returns and their determinants “within” and “between” the different oil companies, using multivariate cointegration techniques in modelling the conditional mean, as well as multivariate GARCH models for the conditional variances. We focus first on the determinants of the market value of each company using the cointegrated VAR/VECM methodology. Then we specifiy the conditional variances of VECM residuals with the Constant Conditional Correlation (CCC) multivariate GARCH model of Bollerslev (1990) and the Dynamic Conditional Correlation (DCC) multivariate GARCH model of Engle (2002). The “within” and “between” DCC indicate low to high/extreme interdependence between the volatilities of companies’ stock returns and the relevant stock market indexes or Brent oil prices.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number
2004.71.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.: