Dynamic correlations between BRIC and U.S. stock markets: The asymmetric impact of volatility expectations in oil, gold and financial markets

Kocaarslan B., SARI R., GORMUS A., SOYTAŞ U.

JOURNAL OF COMMODITY MARKETS, vol.7, pp.41-56, 2017 (ESCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 7
  • Publication Date: 2017
  • Doi Number: 10.1016/j.jcomm.2017.08.001
  • Journal Name: JOURNAL OF COMMODITY MARKETS
  • Journal Indexes: Emerging Sources Citation Index (ESCI), Scopus
  • Page Numbers: pp.41-56
  • Keywords: Volatility expectations, Quantile regression, BRIC markets, Commodity markets, Volatility spillovers, Dynamic conditional correlation (DCC) model, QUANTILE REGRESSION, TIME-SERIES, UNIT-ROOT, CONDITIONAL HETEROSKEDASTICITY, EXCHANGE-RATES, CONTAGION, CRISIS, RETURNS, COUNTRIES, PRICES
  • Middle East Technical University Affiliated: Yes

Abstract

This study investigates the impacts of volatility expectations in oil, gold, currency and the U.S. stock markets on time-varying conditional correlations between BRIC and U.S. stock markets. We use asymmetric dynamic conditional correlation and dynamic conditional correlation models to derive the time-varying relationships. We then examine the dynamic conditional correlations using quantile regressions for a detailed analysis of dependence structure containing non-linear and asymmetric interactions. Our results show that the impacts of volatility expectations in U.S. stock, gold, and oil markets on the correlations are asymmetric based on the level of correlations. Depending on the level of correlations, interdependence between the markets is driven by risk perceptions in both financial and non-financial markets. Our findings have important implications for determining international investment strategies.