MODELING VOLATILITY SPILLOVERS BETWEEN STOCK RETURNS, OIL PRICES, AND EXCHANGE RATES: EVIDENCE FROM RUSSIA AND CHINA

This study investigates the interdependence between crude oil fluctuations and stock return dynamics of major oil BRICS stock market returns namely China and Russia, over the last turbulent period ranging from September 2001 to March 2019. We used a VAR-GARCH model that allows for simultaneous spillover in volatility and return, under the Student's t-distribution. In addition to crude oil prices, foreign exchange rates are so included in the model to strengthen its explanatory power. The results revealed that the Chinese and Russian markets are sensitive to their past own shocks and past own conditional volatility. Furthermore, the fundamental matter more than news in these markets. In contrast, considering the Chinese market, we found that in the long-run future volatility cannot be predicted by conditional crude oil and its foreign exchange rate volatilities. Similarly, the Russian market is insensitive to the foreign exchange rate and crude oil. Our findings are useful for regional and international investors needing forecasts of oil BRICS stock market futures volatility to optimize investment choices.