World Oil Prices, Volatility Transmission, Hedging and Stock Markets in ECOWAS Countries

Moses K. Tule, S.A. Abdulsalam, C.C. Chiemeke

 

Abstract

This paper investigates world oil prices, volatility transmission, hedging and the stock market in ECOWAS countries. The study employs Constant Conditional Correlation CCC model and VAR-GARCH model and the bivariate form of multivariate GARCH models. The study found that the return spillover from stock price to oil price estimates are not statistically significant for Ghana and WAEMU countries indicating that the returns in the stock market do not significantly influence the returns in the oil market. However, the return spillover in the case of Nigeria is statistically significant. The outcome of the optimal weights and hedging ratios of holding the two assets (stock and oil markets) revealed that investors should acquire more stocks than oil in their portfolio in all countries to curtail the risk without reducing the expected returns.

Keywords: Multivariate GARCH, Volatility spillovers, Hedging, Conditional correlations, Crude oil prices, Stock indices.

JEL Classifications: C22, C32, G17, G32

 

World Oil Prices, Volatility Transmission, Hedging and Stock Markets in ECOWAS Countries