Crude oil and world stock markets: volatility spillovers, dynamic correlations, and hedging

In this paper, we investigate volatility spillovers and dynamic correlations between crude oil and stock markets using GARCH-class models. We focus on the dynamic relationships of seven major oil-exporting countries and nine oil-importing countries. Our main findings based on in-sample and out-of-sample evidence suggest that the volatility spillovers and dynamic correlations between global crude oil market and a country’s stock market depend on the net position of oil imports and exports of this country in the world market. In addition, crude oil risk can be better hedged by investing in stocks of oil-exporting countries than in those of oil-importing countries.