Crude oil price volatility has been analyzed extensively for organized spot, forward and
futures markets for well over a decade, and is crucial for forecasting volatility and Value-at-
Risk (VaR). There are four major benchmarks in the international oil market, namely West
Texas Intermediate (USA), Brent (North Sea), Dubai/Oman (Middle East), and Tapis (Asia-
Pacific), which are likely to be highly correlated. This paper analyses the volatility spillover
effects across and within the four markets, using three multivariate GARCH models, namely
the CCC, VARMA-GARCH and VARMA-AGARCH models. A rolling window approach is
used to forecast the 1-day ahead conditional correlations. The paper presents evidence of
volatility spillovers and asymmetric effects on the conditional variances for most pairs of
series. In addition, the forecasted conditional correlations between pairs of crude oil returns
have both positive and negative trends. |