Volatility spillovers between oil prices and the stock market under structural breaks

Bradley T. Ewing, Farooq Malik

Research output: Contribution to journalArticlepeer-review

130 Scopus citations


This paper employs univariate and bivariate GARCH models to examine the volatility of oil prices and US stock market prices incorporating structural breaks using daily data from July 1, 1996 to June 30, 2013. We endogenously detect structural breaks using an iterated algorithm and incorporate this information in GARCH models to correctly estimate the volatility dynamics. We find no volatility spillover between oil prices and US stock market when structural breaks in variance are ignored in the model. However, after accounting for structural breaks in the model, we find strong volatility spillover between the two markets. We compute optimal portfolio weights and dynamic risk minimizing hedge ratios to highlight the significance of our empirical results which underscores the serious consequences of ignoring these structural breaks. Our findings are consistent with the notion of cross-market hedging and sharing of common information by financial market participants in these markets.

Original languageEnglish (US)
Pages (from-to)12-23
Number of pages12
JournalGlobal Finance Journal
StatePublished - Feb 1 2016
Externally publishedYes


  • Oil volatility
  • Stock market volatility
  • Structural breaks
  • Volatility spillover

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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