The purpose of this paper is to investigate the volatility spillovers between the returns on
crude oil futures and oil company stocks using alternative multivariate GARCH models,
namely the CCC model of Bollerslev (1990), VARMA-GARCH model of Ling and
McAleer (2003), and VARMA-AGARCH model of McAleer et al. (2008). The paper
investigates WTI crude oil futures returns and the stock returns of ten oil companies, which
comprise the "supermajor" group of oil companies, namely Exxon Mobil (XOM), Royal
Dutch Shell (RDS), Chevron Corporation (CVX), ConocoPhillips (COP), BP (BP) and
Total S.A. (TOT), and four other large oil and gas companies, namely Petrobras (PBRA),
Lukoil (LKOH), Surgutneftegas (SNGS), and Eni S.p.A. (ENI). Estimates of the
conditional correlations between the WTI crude oil futures returns and oil company stock
returns are found to be quite low using the CCC model, while the VARMA-GARCH and
VARMA-AGARCH models suggest no significant volatility spillover effects in any pairs
of returns. The paper also presents evidence of the asymmetric effects of negative and
positive shocks of equal magnitude on the conditional variances in all pairs of returns. |