Oil Prices and Equity Market Volatility in the Asia-Pacific Region: A Multivariate GARCH and Wavelet Coherence Approach

Abstract

Geopolitical threats have long been a cause of concern for the global energy market. The increase in oil prices and related economic impacts have caused wariness on the part of stockholders due to the unpredictability of impacts. It is against this background that the current paper examines symmetric spillovers of oil to 12 Asia-Pacific stocks through M-GARCH and wavelet coherence analysis. It attempts to unveil the short-term and long-term behaviour and shifts in developed markets versus emerging markets. DCC-GARCH estimates the time-varying correlations of bivariate data, while GO-GARCH estimates the fine covariance structure using 13-variate data. Comparison between the methodologies produces a more detailed description of volatility interdependencies. Based on a horizon of 3,898 observations over a longer time, the analysis is enriched by detecting time–frequency interactions in wavelet coherence, facilitating an understanding of different time frames. The findings on Australian, Singaporean, Thai and Vietnamese spillovers provide trading participants and policymakers with additional evidence and information to manage risk in the context of market volatility across global markets.

JEL Codes: C58, F30, G11, G15