Oil prices and financial stress: A volatility spillover analysis
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nazlioglu2015 - p. 3
Given that our oil prices are daily, we decided to use the daily financial stress index of the Federal Reserve of Cleveland (CFSI). While there are other financial stress index measures for the US, like the Chicago Fed index, the Kansas City Fed index, and the St. Louis Fed index, none of these indexes are available at daily frequency.
nazlioglu2015 - p. 3
he CFSI considers 6 major financial markets: credit, equity, foreign exchange, funding, real estate, and securitization. In order to capture different dimensions of financial stress in these markets, CFSI uses 16 measures.
nazlioglu2015 - p. 3
Summated scales are formed to represent securitization, credit, interbank, real estate, equity, and foreign exchange markets. Then a principle component analysis on the six scales is used to arrive at the single CFSI.
nazlioglu2015 - p. 6
The persistency of the long-run volatility leads us to question whether there is a volatility transfer between oil prices and financial stress in the long run. The results from volatility spillover analysis are illustrated in Table 3. Before the crisis (in the pre-crisis period) the null hypothesis of no volatility spillover from oil prices to financial stress index is rejected; in contrast, the volatility transfer does not appear from financial stress index to oil prices.