Are the systemic risk spillovers of good and bad volatility in oil and global equity markets alike?

This paper explores the asymmetric connectedness of systemic risk between the oil and global stock markets in both the time and frequency domains. To do so, we introduce time-varying parametric vector autoregressive (TVP-VAR) spillover index models and implied volatility indices to examine risk spillover under bad and good volatility changes. The results reveal that the oil market and global stock markets are highly risk-connected. The risk spillover from increases in oil-stock volatility is greater than that from decreases in volatility, showing an apparent asymmetric phenomenon. Additionally, asymmetric risk spillovers are caused by volatility in the oil market. In particular, the ability to predict systemic risk driven by bad and good volatility changes is enhanced during extreme market periods. Furthermore, we observe that the risk spillovers between the oil and global stock markets under bad and good volatility changes are more pronounced in the short term and that risk spillovers are still dominated by bad volatility in each period. The oil market has a significant risk spillover effect under bad volatility changes in all periods, while it only plays a strong risk spillover role under good volatility changes in the medium and long term. Finally, trading strategies based on minimum connectedness portfolios significantly reduce asset volatility. These findings can aid investors in optimizing their portfolios according to market conditions and provide recommendations to relevant policymakers.