Volatility spillover effects among crude oil future market, SAR/EUR and Saudi Arabia CDS Market: The evidence of DCC-FIGARCH model

Abstract

This empirical study examines the time-varying spillover and contagion effects between one major future market, one major FOREX market and six major Islamic CDS markets. We use daily data for crude oil future, SAR/EUR and Saudi Arabia CDS markets. The data spans from February 15, 2011 to August 27, 2020, which entails major economic events. In this paper, we deploy DCC-FIGARCH process. The empirical findings indicate volatility effects spilling over from crude oil future returns to SAR/EUR returns and CDS market returns. Dynamic Conditional Correlations provide empirical evidence of strong contagion effects between the market returns. Conclusions of this paper are of interest to investors diversifying their portfolios of the above markets and to financial derivative markets regulators providing regulations for the under investigation derivative markets.