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Time-Varying Spillover of Multi-Scale Positive and Negative Bubbles in Stock and Oil Markets

Author

Listed:
  • Matteo Foglia

    (Department of Economics and Finance, University of Bari Aldo Moro, Italy)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)

  • Petre Caraiani

    (Institute for Economic Forecasting, Romanian Academy; Bucharest University of Economics Studies)

  • Vincenzo Pacelli

    (Ionian Department in ``Legal and Economic Systems of the Mediterranean: Society, Environment, Cultures", University of Bari Aldo Moro, Italy)

Abstract

The objective of this paper is to analyze time-varying spillover between bubbles in oil and stock markets of the U.S. In this regard, we first use the Multi-Scale Log-Periodic Power Law Singularity Confidence Indicator (MS-LPPLS-CI) approach to detect both positive and negative bubbles in the short-, medium and long-term in the two markets. Then, in the second-step, we utilize a Time-Varying Parameter Vector Autoregressive (TVP-VAR) model to conduct the spillover analysis among the indexes of oil and stock positive and negative bubbles. Based on data covering the monthly period of January 1999 to June 2025, we find that negative bubble spillovers are significantly stronger and more directional than positive ones, with the U.S. equity market emerging as the transmitter to the oil market post-2008. This represents a structural shift from the traditional oil-to-equity transmission paradigm. Moreover, spillover effects are most pronounced at short- and medium-term horizons, intensifying during crisis periods. Our findings suggest that oil is increasingly behaving as a financial asset rather than a physical commodity, with important implications for portfolio diversification and risk management.

Suggested Citation

  • Matteo Foglia & Rangan Gupta & Petre Caraiani & Vincenzo Pacelli, 2025. "Time-Varying Spillover of Multi-Scale Positive and Negative Bubbles in Stock and Oil Markets," Working Papers 202534, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:202534
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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • 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
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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