The relationship between energy and equity markets: Evidence from volatility impulse response functions

• DOI: 10.1016/j.eneco.2014.01.009
• Publication Date: 2014-02-02T19:17:37Z
• Authors: Eric Olson; Andrew J. Vivian; Mark E. Wohar
• Keywords: 0202 electrical engineering, electronic engineering, information engineering; 02 engineering and technology

This paper examines the relationship between the energy and equity markets by estimating volatility impulse response functions from a multivariate BEKK model of the Goldman Sach's Energy Index and the SP in addition, we also calculate the time varying conditional correlations and time varying dynamic hedge ratios. From volatility impulse response functions, we find that low SP however, we find only a weak response from S&P 500 volatility to energy price shocks. Moreover, our dynamic hedge ratio analysis suggests that the energy index is generally a poor hedging instrument.