Volatility spillover in crude oil market using Heston switching Clayton model

Abstract

The purpose of this study is to investigate the effects and risk spillover from the global crude oil market on Tehran Stock Exchange Oil Group. For this purpose, we used a combination of copula models and switching models in this research. First, we will examine marginal models and examine Heston switching and Markov switching models in this market. Then we create the multivariate distribution function using Clayton's copula. The data analyzed in this research are related to the global crude oil markets and the Tehran Stock Exchange Oil Group from December 2011 to January 2023. This time period was chosen due to the examination of different regimes in the above markets and also the selection of the appropriate marginal model for these markets. The results show the crude oil market has influenced on Tehran Stock Exchange and also the Tehran Stock Exchange Oil Group indices. Volatility in this global market cause turbulence in the Tehran stock market and this market is affected by the global crude oil market. This is due to the influence of the global crude oil market on total prices in these markets. Heston switching model and its combination with copula models including Clayton copula can bring good results. This is confirmed by comparing this model with other models such as copula Markov switching models.

Keywords

• heston switching copula
• clayton copula
• spillover
• energy markets
• oil shocks