Asymmetric Oil Market. Linking Energy with Other Basic Indicators and Commodities

Abstract

Oil prices have been analyzed for decades and attract special attention from both, academics and market participants, for many years. During the last decade and especially after the global economic crisis of 2008, energy market- dominated by crude oil- exhibits a noticeable price volatility with great impact to both investor's behavior and financial or commodity markets. It is well documented by the literature that oil price shocks affect the real economy but relatively less work has be done, using recent data, connecting oil prices, industrial production, and other financial indicators and basic commodities. The purpose of this paper is to explore the effects of some basic commodities (gold, silver, metals) and financial markets (bonds) and indicators (industrial production) on the energy (crude oil) market. During our research and while modeling oil price volatility, there were evidence for the presence of ARCH and GARCH effects respectively indicating the percentage change of the oil price over the sample estimation period. Consequently, since the estimated coefficients for the ARCH and GARCH effects were substantially lower than unity, it follows that shocks to the conditional variance of the percentage change of oil price will not be persistent. Finally, our results indicate that oil price volatility increases more after a large negative shock than after a large positive shock confirming the relevant literature on this subject.

Keywords: Energy Market, Crude Oil, GARCH, GJR-GARCH.