Journal of Business Accounting and Finance Perspectives
(ISSN: 2603-7475) Open Access Journal
JBAFP 2019, 1(1); doi: 10.26870/jbafp.2018.01.002
Received: 26 Aug 2019 / Published: 26 Aug 2019
his study examines (i) the dynamic shocks and volatility interactions between each of the eleven U.S. economic sectors and the oil market; (ii) riskminimizing optimal capital allocations between each sector and oil; and (iii) the hedging effectiveness resulting from the inclusion of oil in each sector portfolio. Using weekly data spanning the period June 1994 through February 2016, we document the following regularities: (i) the conditional correlation between each sector and the oil market is time-varying and slowly decaying; (ii) there is either volatility or shock transmission from oil to each sector but not the reverse; and (iii) investors can minimize and hedge risk by allocating a portion of their wealth to oil commodities and forming a portfolio consisting of sector stocks and oil commodities. however, they will need to overweight their investment in sector stocks. Our findings indicate that oil commodities offer diversification potential to U.S. investors holding sector portfolios such as sector ETFs and mutual funds. Further, the risk parity portfolio weights significantly differ from the capital allocation weights.
Keywords: Oil Market; Sectors; CCC model; EDCC-GARCh; portfolio diversification
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).
Ngene, G.; Brodmann, J.; Hassan, M.K. DYNAMIC VOLATILITY AND SHOCK INTERACTIONS BETWEEN OIL AND THE U.S. ECONOMIC SECTORS. JBAFP 2019, 1, 0.
Ngene G, Brodmann J, Hassan MK. DYNAMIC VOLATILITY AND SHOCK INTERACTIONS BETWEEN OIL AND THE U.S. ECONOMIC SECTORS. Journal of Business Accounting and Finance Perspectives. 2019; 1(1):0.
Ngene, Geoffrey; Brodmann, Jennifer; Hassan, M. Kabir. 2019. "DYNAMIC VOLATILITY AND SHOCK INTERACTIONS BETWEEN OIL AND THE U.S. ECONOMIC SECTORS." JBAFP 1, no. 1: 0.