Title: Connectedness between the crude oil and equity markets during the pre-and post-financialisation era
Authors: Sania Wadud - The University of Aberdeen (United Kingdom) [presenting]
Robert B Durand - Curtin University (Australia)
Marc Gronwald - University of Aberdeen (United Kingdom)
Abstract: The financialisation of commodities may change the nature of price volatility and connectedness between equity and commodity futures market. We investigate whether the link between equity and crude oil futures markets in their return volatility has been altered by financialisation by accounting for the systematic patterns of commodity price volatility, namely, seasonality and maturity effects for the period 1993-2019; using weekly data partitioned into pre-and-post financialisation periods. We adopt VAR-DCC-GARCH model to estimate conditional volatility and time-varying correlation to assess how their dynamics have evolved. The conditional volatility and the conditional correlation of crude oil and equities are found to be positively linked after financialisation period. We find that speculation (open interest) has a negative impact on crude oil futures price volatility before (during) financialisation period. Additionally, we use Granger causality analysis to inspect the existence of lead-lag relations among price volatility, correlation, speculation, and open interest and find that speculative activity leads to conditional volatility during financialisation period. The estimated results support the Samuelson hypotheses for both sample periods; however, this effect is found to be diminishing in the financialisation period.