An Investigation of the Volatility Spillovers between the Stock Markets of Selected Members of OPEC and OPEC’s Oil Market using a Multivariate Dynamic Model

Abstract

Stock market indices are under the influence of macroeconomic and non-economic conditions. The multiplicity and unknown nature of the factors that affect capital market has led to uncertainty in investments. Therefore, identification of the behavior of investors, the variables that affect stock price and returns, and the increasing expansion of capital markets by turning small individual investments into manufacturing activities are of utmost importance.The present article mainly focuses on modeling volatility and the resulting spillover effect in the stock market of certain members of OPEC using a multivariate VAR-BEKK model. It tries to examine volatility spillover between the studied countries as well as volatility spillover from the oil market to the stock market of these countries. The results show that oil price volatility has a significant spillover effect on stock market volatility in the selected members of OPEC. Moreover, stock market volatility in each of these countries and OPEC’s Oil Market volatility are significantly associated with market volatility in the other studied countries as well as with their past volatility.

Keywords: money markets, OPEC members, multivariate GARCH models, volatility, spillover effect

JEL Classification: C4, Q43, G1