Robust Estimation in Nonlinear Modeling of Volatility Transmission in Stock Market

Document Type : Research Paper

Author

Department of Industrial Engineering, K.N.Toosi University of Technology, Tehran, Iran

Abstract

Volatility transmission means the connection between different markets in a way that volatility can be transmitted from one market to another. The volatility of oil price in global markets is one of the factors which influence the capital markets of the countries of which their economy is based on oil revenues. Most of these markets have long-run memory characteristic which should be considered in modeling and estimation. In this paper the long memory effect in BEKK model which is one of the main Multivariate models of volatility spillover is considered and the Boudt & Croux (2010) approache is used for stable estimation of the model. The data used in this paper are daily returns of stock prices and oil prices in time interval December 2006 to January 2012. The paper investigate the influence of world oil price index on Dubai and Tehran stock markets in the strategic region of Middle East and also the mutual transmission between the two main trading partner of Iran and Emirates.  The results indicate the volatility transmission from world oil market to Dubai and Tehran markets and also the transmission from Dubai market to Tehran market.

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References

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Advances in Industrial Engineering
Volume 50, Issue 2
پاییز و زمستان
October 2016
Pages 165-176

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