Return and Volatility Transmission Between Oil Prices and Emerging Asian Markets

Abstract

We investigated return and volatility transmission between oil futures

prices and ten Asian emerging indices using a VAR-bivariate GARCH model.

We also analyzed the optimal weights and hedge ratios for optimizing

portfolios to minimize the exposure to risk associated with oil futures price

changes. We found no significant influence of oil futures price returns on

Asian stock returns. However, strong volatility spillover was observed from

oil futures price shocks and volatility to counterpart volatilities. In addition,

optimal weights and hedge ratios suggested that incorporating the oil asset

in a well-diversified portfolio effectively hedged the risks associated with oil

price volatility.