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Review of Quantitative Finance and Accounting

, Volume 53, Issue 3, pp 701–720 | Cite as

Crude oil and gasoline volatility risk into a Realized-EGARCH model

  • Bernard Ben SitaEmail author
Original Research

Abstract

This paper disentangles oil volatility risk to two components. The first component is attributed to crude oil, while the second is related to gasoline. This disentanglement serves the purpose of investigating the extent to which crude oil and gasoline are complementary in impacting return and variance residuals. The Realized-EGARCH model of Hansen et al. (J Appl Econom 29(5):774–799, 2014) is used to test the hypothesis that stock markets show some delay in incorporating oil information. This study shows that both crude oil- and gasoline-based information impact stock markets contemporaneously in a complementary fashion. Unlike the underreaction hypothesis, which is suggested as an explanation to the negative lagged effect of crude oil price change on return, the sequential information hypothesis explains better the ways information about oil is disseminated among U.S. industry portfolios.

Keywords

Crude oil Gasoline EGARCH Realized-EGARCH Volatility Industry Sequential information hypothesis 

JEL Classification

G13 Q40 

Notes

Acknowledgements

I am thankful for helpful comments from, the editor (Dr. C.-F. Lee), two anonymous referees, and participants in the 4th International Symposium on Energy and Finance Issues on March 24–26, 2016 in Paris. Special thanks to Dania Makki for proofing read the last version of the paper.

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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Adnan Kassar School of BusinessLebanese American UniversityBeirutLebanon

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