1 Modeling Time Varying Volatility of Oil Price Shocks, Stock Returns and Exchange Rate

2 of BRICS during Global Financial Crisis

3
41. Introduction:
5Despite the constant shift to alternative sources of energy, oil still comprises the large portion of
6energy worldwide (EIA March 2016). Increased economic activities like industrial production,
7transportation and agriculture portray the economic growth of an economy. As the countries
8unrbanize and modernazie their demand for oil increases significantly. Countries experiencing
9rapid economic growth for example in 2007 China’s economy expanded by an eye-popping
1014.2%, India managed 10.1% growth, Russia 8.5%, and Brazil 6.1% and dramatically increased
11their demand for oil (Goldman Sachs, 2016). In resulting, crude oil is debatably one of the most
12crucial commodities for the functioning of world trade and global economy.
13
14Due to this much dependence of economy on oil as energy, the changes in oil prices have a
15consequential effects on macroeconomic variables and financial markets globally, particularly
16the foreign exchange markets (Atems et al. 2015, Mensi et al. 2015). The important fact is that
17crude oil is mostly traded in US$ and this fact provides linkages between crude oil prices and
18exchange rate the large portion of the international transactions of crude oil is denominated in
19U.S. dollars. Thus, oil price changes induce the inflow (or outflow) of oil dollars, which will
20directly affect the exchange rate of an oil-exporting or oil-importing country with the U.S.
21dollars (Kim et al. 2012, Aloui et al. 2013, Mensi et al. 2015, Bouoiyour et al. 2015). Crude oil
22prices and exchange rates are also linked in other ways too, for example, change of demand and
23supply side of non-tradable goods and disposable income due to oil prices can lead to change in
24exchange rates (for details see Beckmann et.al 2015, Shahbaz et.al. 2015). Commonly news
25arrival in asset market induces volatility rather than resolving the uncertainty (Shi et al. 2015). It
26is also common believed that asset volatility responds differently to the bad news as compare to
27good news, more specifically negative shocks induces more volatility in assets returns than
28positive shocks (Kristoufek, 2014), means asset volatility exhibits asymmetric behavior. So news
29related to oil prices can induce asymmetry in exchange rate volatility.
30
31As crude oil is highly important to economy, it can be expected that there is a linkage between
32oil prices and stock markets, companies which use oil as factor of production, their earnings can
33be affected by fluctuating oil prices (Le and Chang, 2015). In recent years, there is growing body
34of literature which found significant links between crude oil and stock market returns (see for
35example, Kilian and Park 2009, Odusami 2009, Chang and Che 2011, Filis et al. 2011, Soucek
36and Todorova 2013, Ciner 2013, Cunado and Gracia 2014, Ajmi et Al. 2014, Zhu et al. 2015,
37Jammazi and Nguyen 2015, Xu 2015, DU and He 2015). Oil is a form of energy which serves as
38life blood for the development of economy; growing oil prices affect the economies directly by
39effecting the production of goods and services. Since 1973 crude oil is a commodity which faced
40many price fluctuations (Bouoiyour et al. 2015), and in the light of relation explained above any
41news related to crude oil prices can disturb the volatility of stock market. The question is what is
42the cause due to which stock returns show asymmetric behavior, the most popular explanation in
43literature for this is leverage effect (Long et al. 2014, Christensen and Kristoufek 2014,
44Christensen et al. 2015). Initially, Black (1976) discusses a relationship between volatility and
45returns of stocks. This negative relationship is based on an argument that due high debt to equity
46ratio the returns of the company’s stock decreases in response to that volatility increases which is

1
47termed as leverage effect. Certainly negative news is responsible for negative returns by driving
48the prices down, thus traded assets exhibits leverage effect as natural characteristics. Leverage
49effect and asymmetric volatility are interchangeably used and often hard to distinguish, as
50asymmetric volatility is also recognized by low volatility with growing market (Bullish) and high
51volatility with declining market (Bearish) (Kristoufek 2014, Christensen et al. 2015).
52
53Another cause of asymmetric behavior of volatility found in literature is volatility feedback
54effect between the variables (Christie 1982, Wu 2000, 2001, Bollerslev at al. 2006, Christensen
55et al. 2015). The difference is just of causality leverage effect explains why negative returns
56leads to high volatility and volatility feedback effect explains why high volatility leads to low
57returns (Bollerslev at al. 2006). The trading behavior is considered as another cause of
58asymmetry in stock market (Bohl and Henke 2003, Chuang et al. 2012, Koulakiotis et al. 2015.
59Despite of causality, the relationships between return and volatility can show different
60characteristics, return and volatility are negatively correlated and causality runs from returns to
61volatility not vice versa (Pagan 1996, Bouchaud and Potters 2001, Bouchaud et al. 2001,
62Bollerslev et al. 2006, Kristoufek 2014). (Shupei et al. 2016) reported oil price shocks exert an
63asymmetric effect on stocks and further added to study the time horizon. Similar studies have
64been done by various researchers (Kristjanpoller and Concha, 2016) also studied impact on stock
65returns due to change in fuel prices. Whereas, researchers like (Tiwari and Albulescu, 2016) and
66(S Huang et al. 2016) have considered exchange rate and oil prices for the analysis. In such
67perspective our study responds to the gap in previous studies and hence we test the asymmetric
68effect on stocks and exchange rate before, during and after financial crisis period of BRICS
69economies.
70
71Few studies have been conducted on different economies for modeling the stock market
72asymmetric volatility in South Asia (for example, Kaur 2002, 2004, Pandey 2005, Karmakar
732007, Bahadur 2008). Moreover, Alberg et al. (2008) studied the Tal Aviv stock exchange
74(TASE) indices and reported that significant asymmetry coefficients similarly, Saeidi and
75Koohsarian (2010) conducted study on monthly stock market index of Iranian stock market and
76argued that asymmetry of volatility and leverage effects are present. Lin et al. (2008) argued that
77Indian stock market responds asymmetrically to oil prices. Huang (2009) examined major Asian
78stock markets, including the Japan, South Korea, and Taiwan’s stock markets, and found
79leverage effect by applying general stochastic volatility model. Cheong (2009) conducted study
80on both WTI and Brent crude oil markets by using GARCH specification. The results exposed
81that volatility is more persistent in WTI than the Brent crude oil, and leverage effect is present in
82the Brent market. Over last few years, modeling the volatility of stock returns attracted the
83attention of many researchers who concluded that financial time series exhibits volatility
84clustering skewness and kurtosis (put references here). Bollerslev (1986) and Engle (1982)
85Introduced Generalized autoregressive Hetroskedasticity models (GARCH) to capture these
86stylized facts of financial time series but despite of popularity these models fail to capture
87asymmetric behavior (Koulakiotis et al. 2015). The reason is that, the volatility is symmetric i.e.
88good and bad news contribute to volatility. The asymmetric responses of volatility to bad and
89good news are accommodated by more improved form GARCH series which include
90Exponential GARCH (EGARCH) of Nelson (1991) and the threshold GARCH by Glosten et al.
91(1993) (GJR-GARCH). Liu and Hung (2010) argued that GJR-GARCH model obtains the most
92accurate volatility forecasts and modeling asymmetric component is much more important for

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 93improving the volatility forecasts of financial returns in the presence of fat-tails, leptokurtosis,
94skewness and the leverage effect (put references here). Many authors used different GARCH
95with various volatility specification models to capture the asymmetric behavior and argued about
96their predictive ability for example some studies have found evidence in support of the
97Quadratic- GARCH model (Engle and Ng, 1993) for stock returns volatility predictions (Franses
98and van Dijk 1996, Wei 2002). Furthermore, Brailsford and Faff (1996) and Taylor (2004) found
99evidence supporting GJR-GARCH model but Heynen and Kat (1994), Chong et al. (1999),
100Loudon et al. (2000) validated that EGARCH model achieves superior performance in predicting
101stock market volatility. Furthermore, Awartani and Corradi (2005) and Evans and McMillan
102(2007) concluded that GARCH models have flexibility for asymmetries in volatility produce
103more good volatility predictions. Overall, we note that asymmetries play a crucial role in
104volatility forecasting. For emerging stock market data, Gokcan (2000) argued that if the stock
105market return exhibit skewed distributions then linear GARCH model cannot cope with such
106problem, to deal with such problem non linear GARCH models such as EGARCH and GJR-
107GARCH are introduced. These mixed results motivated the researchers to use the fresh data of
108stock returns and exchange rates from BRICS economies (as these economies are highly growing
109and thus effected by oil prices) and check the asymmetric volatility of these variables in response
110to crude oil prices. For this purpose EGARCH, GJR-GARCH models are used and their
111performance is evaluated on the basis of AIC, SIC and HQ minimum values criteria.
112
1132. Data and Methodology:
1142.1 Data
115This study aims to investigate the impact of oil prices on stock exchanges and exchange rate of
116BRICS economies. In doing so, daily data of Brazil, Russia, India, China and South Africa is
117collected from the BM&F, RTS, BSE-500, SSE Composite Index, JSE and Brazilian Real,
118Russian Rubbal, Indian Rupee, Chinese Yen, Zar and WTI oil prices following Basher and
119Sadorsky (2006), Fan et al. (2008), Cheong (2009), Kristoufek (2014), Mensi et al. (2015, 2016)
120and, Sui and Sun (2016). The sample period is from January 2005 to June 2015. The data set is
121divided into three periods i.e., before, during and after crisis following (Kayani, 2014). To
122minimize the variation, we have taken logarithm of exchange rate and stock returns. Log returns
123stabilize variation and it is also used as transformation to normality (Wiklin, 2011).
124
1252.2 Econometric Methodology
126Engle (1982) developed an Autoregressive Conditional Heteroskedasticity (ARCH) model that
127incorporates all past error terms. A lagged term conditional volatility was included in the model
128by Bolloerslev (1986) to make it generalized; a GARCH model. Both the ARCH and GARCH
129models capture volatility clustering and leptokurtosis. The distributions of both models are
130symmetric which fail to model the leverage effect (Alberg et al. 2008). To address this problem,
131many nonlinear extensions of GARCH models have been proposed, such as the Exponential
132GARCH (EGARCH) model by Nelson (1991), and GJR model by Glosten et al. (1993). The
133GJR-GARCH (1,1) and the EGARCH (1,1) models are asymmetric; i.e. they allow for different
134impacts on volatility by positive and negative of equal magnitudes. The standard GARCH model
135works well if all of the estimated coefficients are positive. Nelson (1991) proposed a
136specification that does not require nonnegative constraints. The specification proposed by Nelson
137(1991) as given below:
138

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139 Ln(ht)= α0+ α1(ε t-1/ht-10.5)+ λ1| εt-1/ht-10.5| +β1ln(ht-1) (1)
140
141The equation-1 is in log linear form due to that regardless of the magnitude of lnht the implied
142value of ht can never be negative. The standardization of (ε t-1/ht-10.5) allows for more natural
143interpretation of the size and persistence of shocks. If α 1=0 then the model is symmetric if α 1 <0
144then positive shocks (good news) generate less volatility than negative shock (bad news). When
145α1 > 0 it implies that positive innovations are more destabilizing than negative innovations. Where
146α0= constant, α1= measures the asymmetry or leverage effect due to this parameter EGARCH
147allows test for asymmetry. λ1= symmetric effect of the model, β1= measures the persistence in the
148volatility. The ARCH-terms measures the impact of past shocks on conditional volatility and
149GARCH-terms which capture the impact of past volatility on current volatility. If negative
150shocks contribute more to volatility than positive shocks then we can model the innovations
151process using GJR model. The equation of GJR is as follows:
152
153 h2t= α0+ α1ε2t-1+ λ1ε2t-1It-1 +β1h2t-1(2)
154
155where I is the indicator variable, if ε t-1<0 I=1 and the effect of ε2 t-1 shock on ht is = (α1+ λ1)ε2t-1 &
156if ε t-1>0 I=0 and the effect of ε2 t-1 shock on ht is = α1ε2t-1. In the end to evaluate the model
157performance AIC, SIC & HQ techniques are applied (Javed and Mantalos, 2013).
158
159After analyzing all results for exchange rate for all economies it is found that EGARCH & GJR-
160GARCH are have the ability to capture asymmetric aspect of the volatility in exchange rates, oil
161prices have significant effect on the exchange rates, results are consistent with Chowdhury and
162Ratan (2012), Narayan et al. (2008). In case of stock returns oil prices have significant effect on
163stock returns for all economies, EGARCH & GJR-GARCH are also successful to capture
164leverage effect for all economies, past volatility have the significant effect on the present
165volatility same results are supported by Kayani et al. (2014), Almeida and Hotta (2014) and, Bal
166and Rath (2015).
167
1683 Results and Discussions
1693.1 Stock Returns (EGARCH and GJR-GARCH)
170EGARCH is a model which is used to capture the leverage effect and allow for both good news
171and bad news effect on the volatility of assets Suleman (2012). After going through results
172researchers concluded that according to results of mean equations the past mean rate of return
173and the oil prices are affecting the present mean rate of return significantly in most of the cases
174for stock returns of BMF, RTS, SSE, BSE and JSE. In variance equation α 1 represents the ARCH
175term or leverage effect term if α1 <0 means negative and statistically significant meaning that bad
176news is generating more volatility in most cases where the model captured the leverage effect
177sign is (-) but there are some cases which shows the parameter α 1 with (+) sign and significant p
178values like BSE 0.37 (0.002) during crisis, JSE 0.67 (0.000) after crisis, results are presented in
179Table-2 and Table-3 respectively. Volatility of these variables is exhibiting asymmetric behavior
180due to good news supported by Suleman (2012). β1 which represents the GARCH term shows the
181impact of past volatility on the present volatility and long term persistence in the volatility.
182Results for all variables for all three time periods shows the significance of GARCH term means
183past volatility is affecting the volatility and also high values of β1 shows persistence in the
184volatility except for BSE and SSE during financial crisis with insignificant p-value -0.402

4
185(0.349) and -0.06 (0.911) respectively which are presented in Table-2. α 2 which represent
186coefficient for oil prices significantly affecting present volatility means oil prices are responsible
187for rise and fall in the volatility but except for following cases BSE, JSE and SSE during crisis in
188Table-2. During crises oil prices were going down so were not able to affect the volatility in
189some cases as mentioned.
190
191GJR-GARCH is different from EGARCH in a sense its only allow for bad news effect. Mean
192equation is same for both models i.e. mean equation shows the impact of past mean stock returns
193on present mean return in case of stock returns. As per results of mean equation in case of stock
194returns past mean stock returns are affecting present mean stock returns. Oil prices are impacting
195following variables mean stock returns JSE before crisis and after crisis as shown in Table-7 and
196Table-8, RTS during crisis and after crisis, SSE after crisis Table-9. According to variance
197equation GJR-GARCH which tells about the impact of ARCH or leverage effect term, GARCH
198term and oil prices on present volatility of stock returns λ1 the leverage effect, if λ1 is > 0 bad
199news is generating more volatility. In cases where model captured the leverage effect λ 1 was
200greater than 0 means negative news was generating more volatility but in some cases variables
201showed the opposite sign i.e. λ1 <0 for example in Table-7 and Table-9, JSE before crisis -0.19
202(0.001) and after crisis -6.2 (0.000). β1 is the GARCH term is significant for all cases except for
203BMF and BSE during crisis as shown in Table-8. α 2 is oil price coefficient which is significant
204for all cases except for following variables BMF for all three periods 0.989, 0.658 and 0.989 as
205shown in (Table-4, Table-5, Table-6).
206
2073.2 Exchange Rate (EGARCH and GJR-GARCH)
208According to results of mean equations of EGARCH the past mean exchange rate and oil prices
209are affecting the present mean exchange rate significantly in most of the cases of exchange rate
210the mean exchange rate is also the function of past exchange rate and present oil prices result are
211also significant in most of the cases i.e. BRL, RUBLE, CNY, INR and ZAR. In case of exchange
212rate variance equation of EGARCH in most cases where the model captured the asymmetric
213effect sign of α1 is (-) (means bad news is generating more volatility) but there are some cases
214which shows the parameter α1 with (+) sign (means good news is responsible for volatility) and
215significant p values like BRL before crisis is 0.14 (0.000) and after crisis 0.06 (0.0001), CNY
2160.04 (0.02), ZAR 0.09 (0.016) and INR 0.03 (0.04) after crisis, RUBLE before 0.033 (0.006),
217and after crisis 0.09 (0.0000) presented in Table 4-5-6. Volatility of these variables is exhibiting
218asymmetric behavior due to good news. Results for all exchange rates for all three time periods
219shows the significance of GARCH term means past volatility is affecting the volatility and also
220high values of β1 shows persistence in the volatility except for INR during financial crisis with
221insignificant p-value (0.307) in Table-5. α2 coefficient for oil prices significantly affecting
222present volatility of exchange rates means oil prices are responsible for rise and fall in the
223volatility but except for following cases BRL before and during crisis, INR and RUBLE after
224crisis and ZAR before and after crises.
225
226In case of exchange rates where model captured the asymmetric effect λ 1 was greater than 0
227means negative news was generating more volatility but in some cases variables showed the
228opposite sign i.e. λ1 <0 BRL before -0.31 (0.00) and after crisis -0.08 (0.00), RUBLE before
229crisis -0.104 (0.0002) and ZAR after crisis -0.129 (0.04), presented in Table 10-11-12. β 1 is the
230GARCH term which is significant for all cases except for INR during crisis (0.482) and ZAR

5
231before crisis (0.179). α2 is oil price coefficient which is significant for all cases except for INR in
232all three periods, BRL and ZAR before crisis and RUBLE after crisis 0.325, 0.845 & 0.99
233respectively, results are presented in Table-11 & 12 at appendix. After analyzing the overall
234results it’s found that both models are able to capture asymmetric behavior of volatility in
235exchange rate and stock returns. In case of exchange rate the results are consistent with following
236authors, Narayan et al. (2008) who used EGARCH model to found asymmetric effect caused by
237oil prices in Fijian Dollar-US Dollar exchange rate, Ayodeji (2009) who found out significant
238asymmetric effect in Naira/Dollar exchange rate by using GJR-GARCH model. In case of stock
239returns results are supported by following authors, Kayani et al. (2014) who used EGARCH
240model to capture the leverage effect in stock returns of emerging economies and Almeida and
241Hotta (2014) who used EGARCH & GJR –GARCH models to find out leverage effect in
242Brazilian stock market.
243
244
2454. Conclusion and Policy Implications
246This study examines the asymmetric behavior of volatility of stock markets and exchange rates
247of BRICS (Brazil, Russia, India, China and South Africa) economies caused by oil prices before,
248during and after global financial crises of 2007 using EGARCH and GJR-GARCH models. The
249data set is of daily frequency running from January 2005 to June 2015 and divided it into three
250parts i.e. before during and after financial crises. The results of EGARCH for Brazil, India and
251Russia stock markets are showing strong presence of leverage effect with significant leverage
252effect coefficient means oil price is generating asymmetric volatility in it where’s South Africa
253but China stock markets are showing weak presence of leverage effect. The results of GJR-
254GARCH are significant for Russia and South Africa stock markets showing impact of the oil
255price but weak for Brazil India and China stock markets. We note that results of EGARCH for
256exchange rates Brazilian Real and Russian Ruble show strong presence of leverage effect
257suggesting impact of oil price while Chinese Yen, Indian Rupee and South African Zar show
258weak presence of leverage effect. The results of GJR-GARCH model Brazilian Real show strong
259presence of leverage effect showing oil price impact on it, Indian Rupee shows no leverage effect
260and Chinese Yen, Russian Ruble and South African ZAR show weak leverage effect.
261
262The empirical results also suggest that how oil prices can impact some of the BRICS stock
263markets and exchange rates and other remain safe from impact of oil prices which can be
264beneficial for portfolio diversification. Portfolio investors can invest in those stock markets
265currencies which show no or weak impacts of oil price fluctuations in time of high oil price
266volatility. Portfolio investors and risk managers can use this kind of information for diversifying
267within securities like within stocks or within currencies or across securities like stock and
268currency across.
269
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436Appendix

4371. Results of EGARCH (Stock Markets)

438Impact of OP on BMF, BSE, JSE, RTS, SSE

439Table 1
Pre Crises
Parameters Coeff. Prob. Coeff. Prob. Coeff. Prob. Coeff. Prob Coeff.Prob.
.
Estimate of the Mean
equation
C 0.00 0.321 -0.01 0.067 0.03 0.000 0.001 0.896 -0.004 0.555
R(OP) -0.00 0.038 1.00 0.000 1.00 0.000 0.998 0.000 1.001 0.000
R SR (t-1) 1.00 0.000 -0.00 0.807 -0.02 0.000 0.002 0.948 -0.003 0.133

Estimates of Variance
equation
α0 -1.12 0.000 -1.89 0.000 -1.47 0.000 -1.32 0.000 -0.395 0.001
λ1 0.10 0.001 0.19 0.000 0.02 0.058 0.163 0.000 0.142 0.000
α1 -0.15 0.000 -0.22 0.000 -0.06 0.007 -0.11 0.000 -0.018 0.084
β1 0.94 0.000 0.90 0.000 0.94 0.000 0.902 0.000 0.982 0.000
α2 0.25 0.001 0.44 0.001 0.49 0.000 0.131 0.047 0.063 0.036

10
440

441Table 2
During Crises
Parameters Coeff. Prob. Coeff Prob. Coeff Prob.Coeff. Prob. Coeff Prob.
. . .
Estimate of the
Mean equation
C 0.135 0.000 0.054 0.411 0.105 0.024 0.289 0.000 0.103 0.218

R(OP) -0.003 0.362 0.991 0.000 0.938 0.000 0.842 0.000 0.974 0.000

R BSE(t-1) 0.973 0.000 -0.011 0.158 -0.004 0.774 0.081 0.000 -0.01 0.163

Estimates of
Variance equation
α0 -11.17 0.000 -13.46 0.004 -3.214 0.172 -1.080 0.000 -14.5 0.039

λ1 -0.804 0.000 -0.187 0.440 -0.243 0.207 -0.231 0.000 0.113 0.665

α1 0.084 0.448 0.373 0.002 -0.165 0.167 -0.165 0.000 -0.18 0.160

β1 0.002 0.989 -0.402 0.349 0.746 0.000 0.916 0.000 -0.06 0.911

α2 1.051 0.000 0.609 0.661 0.783 0.190 0.350 0.000 2.638 0.068

442

443Table 3
After Crises
Parameters Coeff. Prob. Coeff. Prob. Coeff. Prob. Coeff. Prob. Coeff. Prob.

Estimate of the Mean

equation
C 0.020 0.062 0.005 0.494 -0.049 0.000 -0.026 0.000 0.013 0.187

R(OP) -0.003 0.028 0.999 0.000 0.988 0.000 1.006 0.000 0.999 0.000

R JSE(t-1) 0.996 0.000 -0.002 0.242 0.036 0.000 0.004 0.004 -0.005 0.018

Estimates of
Variance equation
α0 -0.677 0.000 -1.477 0.000 -10.24 0.000 0.188 0.000 0.270 0.001

λ1 0.081 0.000 0.128 0.00 1.036 0.000 -0.004 0.204 0.228 0.000

α1 -0.084 0.000 -0.102 0.000 0.670 0.000 -0.089 0.000 -0.035 0.003

β1 0.958 0.000 0.817 0.000 0.249 0.000 0.992 0.000 0.926 0.000

11
 α2 0.096 0.000 -0.301 0.001 1.287 0.000 -0.134 0.000 -0.612 0.000

444

445Results of EGARCH (Exchange Rates)

446Impact of OP on BRL, CNY, INR, RUB, ZAR

447Table 4
Pre Crises
Parameters Coeff. Prob. Coeff Prob. Coeff Prob. Coeff Prob. Coef Prob.
. . . f.
Estimate of the
Mean equation
C 0.014 0.000 - 0.63 - 0.331 0.005 0.33 0.004 0.01
0.000 0.002 2
R(OP) 0.99 0.000 1.000 0.000 1.007 0.000 0.99 0.00 0.99 0.00
0
R BRL(t-1) -0.005 0.000 - 0.38 0.001 0.000 -0.00 0.00 -1.00 0.986
0.001 1

Estimates of
Variance equation
α0 -2.87 0.000 - 0.000 -6.27 0.000 - 0.00 -9.87 0.000
29.63 16.60 0
λ1 0.58 0.000 0.123 0.084 0.52 0.000 0.10 0.00 0.64 0.000
0
α1 0.14 0.000 - 0.001 0.038 0.205 0.033 0.00 0.06 0.257
0.163 6
β1 0.792 0.000 -0.49 0.012 0.69 0.000 -0.90 0.00 0.19 0.014
0 0
α2 -0.073 0.674 2.86 0.000 0.88 0.000 -5.88 0.00 -0.09 0.773
0
448

449Table 5
During Crises
Parameters Coeff. Prob. Coeff. Prob. Coeff. Prob. Coeff Prob. Coeff. Prob.
.
Estimate of the Mean
equation
C 0.09 0.00 0.10 0.000 0.06 0.000 ** ** ** **
R(OP) 0.86 0.00 0.87 0.000 0.95 0.000 ** ** ** **
R CNY(t-1) -0.02 0.00 -0.00 0.457 0.001 0.002 ** ** ** **

Estimates of
Variance equation
α0 -10.7 0.02 -14.7 0.000 -14.14 0.000 ** ** ** **
λ1 0.90 0.00 1.11 0.000 1.00 0.000 ** ** ** **
α1 0.26 0.09 -0.41 0.025 0.05 0.767 ** ** ** **

12
 β1 0.46 0.03 0.35 0.001 0.18 0.307 ** ** ** **
α2 2.49 0.07 2.05 0.001 2.25 0.008 ** ** **
450 ** represent that results during crises are not available as we found no ARCH effect for series so we will
451 not further continue it.

452Table 6
After Crises
Parameters Coeff. Prob. Coeff. Prob. Coeff. Prob. Coeff. Prob. Coeff. Prob.

Estimate of the
Mean equation
C -0.001 0.257 0.002 0.000 -0.001 0.347 0.001 0.012 -0.001 0.424
R(OP) 1.001 0.000 0.99 0.000 1.00 0.000 0.99 0.000 1.002 0.000
R INR(t-1) 0.001 0.000 -0.001 0.000 -0.000 0.737 -0.001 0.195 -0.001 0.760

Estimates of
Variance equation
α0 -0.77 0.000 -4.08 0.000 -1.46 0.000 -1.48 0.000 -6.81 0.000
λ1 0.38 0.000 0.58 0.000 0.33 0.000 0.36 0.000 0.61 0.000
α1 0.06 0.000 0.04 0.025 0.03 0.042 0.09 0.000 0.09 0.017
β1 0.88 0.000 0.83 0.000 0.92 0.000 0.91 0.000 0.25 0.001
α2 -0.48 0.000 0.47 0.000 0.09 0.107 0.09 0.264 -1.39 0.264
453

454

455

456

457Results of GJR-GARCH (Stock Markets)

458Impact of OP on BMF, BSE, JSE, RTS and SSE

459Table 7
Pre Crises
Parameters Coeff. Prob. Coeff. Prob. Coeff Prob Coeff Prob. Coeff. Prob.
. . .
Estimate of the
Mean equation
C 0.010 0.764 0.011 0.684 0.047 0.00 0.005 0.209 0.013 0.359
0
R(OP) 1.001 0.000 1.001 0.000 1.008 0.00 0.997 0.000 1.001 0.000
0
R BMF(t-1) -0.007 0.414 -0.007 0.488 - 0.00 0.001 0.691 -0.002 0.139
0.035 0

Estimates of
Variance equation
α0 8.4E-6 0.484 6.5E-5 0.484 - 0.01 - 0.048 7.2E-5 0.442

13
 9.5E- 1.1E-
5 5
α1 0.149 0.331 0.150 0.331 0.193 0.00 0.028 0.057 0.149 0.295
1
λ1 0.049 0.794 0.049 0.794 - 0.00 0.122 0.000 0.049 0.779
0.194 1
β1 0.599 0.019 0.599 0.019 0.872 0.00 0.817 0.000 0.599 0.027
0
α2 -8.8E- 0.989 -6.9E- 0.989 5.7E- 0.01 9.2E- 0.009 -5.9E- 0.991
6 7 5 0 6 7
460

461Table 8
During Crises
Parameters Coeff. Prob. Coeff. Prob Coeff. Prob. Coeff. Prob. Coeff. Prob
. .
Estimate of the
Mean equation
C 0.169 0.02 0.055 0.49 0.062 0.182 0.202 0.000 0.110 0.13
5 7 2
R(OP) 0.966 0.00 0.990 0.00 0.961 0.000 0.873 0.000 0.972 0.00
0 0 0
R BSE(t-1) -0.009 0.09 -0.009 0.29 -0.002 0.831 0.082 0.000 -0.012 0.08
5 7 1

Estimates of
Variance
equation
α0 3.7E-5 0.65 0.001 0.60 9.5E-6 0.847 -0.001 0.000 -6.4E-5 0.42
8 3 5
α1 -0.117 0.00 -0.035 0.00 -0.093 0.021 -0.164 0.000 0.040 0.68
4 0 0
λ1 -0.071 0.33 -0.026 0.84 0.056 0.283 0.164 0.000 0.065 0.68
4 2 4
β1 0.412 0.20 0.603 0.44 1.020 0.000 1.011 0.000 0.713 0.00
8 8 5
α2 2.4E-5 0.65 -5.0E-5 0.62 -3.5E-7 0.991 0.000 0.000 4.8E-5 0.40
8 0 1
462

463

464Table 9
After Crises
Parameters Coeff. Prob. Coeff Prob. Coeff. Prob. Coeff. Prob. Coeff. Prob.
.
Estimate of the
Mean equation
C 0.045 0.333 0.003 0.570 -0.039 0.000 0.056 0.000 0.020 0.038
R(OP) 0.991 0.000 0.999 0.000 0.990 0.000 0.972 0.000 0.997 0.000

14
 R JSE(t-1) 0.002 0.585 0.000 0.749 0.029 0.000 0.012 0.000 -0.226 0.003

Estimates of
Variance
equation
α0 3.8E-5 0.517 12.35 0.000 0.001 0.000 0.000 0.000 8.0E- 0.000
5
α1 0.149 0.308 -8.63 0.000 6.328 0.000 -0.035 0.000 0.116 0.000
λ1 0.049 0.739 10.67 0.000 -6.211 0.000 0.180 0.000 0.097 0.000
β1 0.599 0.030 144.1 0.000 0.017 0.002 0.626 0.000 0.665 0.000
α2 -3.4E- 0.989 8.974 0.000 -6.3E-5 0.003 -0.000 0.000 -3.7E- 0.000
7 5
465

466Results of GJR-GARCH (Exchange rates)

467Impact of OP on BRL, CNY, INR, RUBBLE and ZAR

468Table 10
Pre Crises
Parameters Coeff. Prob. Coeff. Prob. Coeff. Prob. Coeff. Prob. Coeff. Prob.

Estimate of the
Mean equation
C 0.009 0.002 0.001 0.902 -0.007 0.374 0.003 0.256 0.005 0.013

R(OP) 0.991 0.000 0.999 0.000 1.003 0.000 0.997 0.000 0.992 0.000

R BRL(t-1) -0.004 0.002 -0.000 0.618 0.001 0.128 -0.001 0.106 0.001 0.543

Estimates of
Variance
equation
α0 2.2E-6 0.059 2.1E-7 0.000 9.7E-7 0.484 7.8E-7 0.000 5.7E-6 0.162

α1 0.489 0.000 0.149 0.087 0.150 0.331 0.104 0.000 0.436 0.000

λ1 -0.315 0.000 0.049 0.639 0.050 0.794 -0.104 0.000 -0.105 0.256

β1 0.493 0.000 0.599 0.000 0.600 0.019 0.650 0.000 0.082 0.179

α2 -6.3E-7 0.325 -9.0E-8 0.000 -8.5E- 0.989 -3.3E- 0.000 -4.3E-7 0.845
9 7
469

470

471Table 11
During Crises
Parameters Coeff. Prob. Coeff. Prob. Coeff. Prob. Coef Prob. Coef Prob.
f. f.

15
 Estimate of the
Mean equation
C 0.0723 0.000 0.098890 0.000 0.077527 0.518 ** ** ** **
0 0 8
R(OP) 0.8830 0.000 0.881815 0.000 0.954826 0.000 ** ** ** **
0 0 0
R CNY(t-1) -0.0181 0.000 -0.00011 0.008 - 0.959 ** ** ** **
0 4 0.000320 6

Estimates of
Variance
equation
α0 -6.60E- 0.000 -2.90E-07 0.000 1.05E-05 0.805 ** ** ** **
05 0 0 9
α1 0.56065 0.008 0.149754 0.000 0.150000 0.748 ** ** ** **
1 6 9 7
λ1 - 0.166 0.050585 0.880 0.050000 0.923 ** ** ** **
0.34090 9 2 9
β1 0.40558 0.000 0.601026 0.000 0.599999 0.482 ** ** ** **
3 0 0 6
α2 4.37E- 0.000 1.89E-07 0.000 -1.24E- 0.995 ** ** ** **
05 0 0 07 2
472** represent that results during crises are not available as we found no ARCH effect for series so we will
473not further continue it.

474Table 12
After Crises

Parameters Coeff. Prob. Coeff. Prob. Coeff. Prob. Coeff. Prob. Coeff. Prob.

Estimate of the
Mean equation
C -5.67E- 0.9676 0.001237 0.0001 - 0.817 0.00346 0.637 - 0.8136
05 0.00114 9 6 2 0.00042
R(OP) 1.00111 0.0000 0.998953 0.0000 1.00017 0.000 0.99861 0.000 1.00125 0.0000
3 0 6 0
R INR(t-1) - 0.8548 - 0.0091 0.00046 0.761 - 0.751 - 0.6166
0.000124 0.000215 8 4 0.00070 8 0.00038
7

Estimates of
Variance equation
α0 2.20E-06 0.0000 -4.05E- 0.0000 2.90E- 0.455 5.18E-06 0.456 1.22E- 0.0014
08 06 9 7 05
α1 0.179235 0.0000 0.267709 0.0000 0.15000 0.043 0.15000 0.004 0.42043 0.0000
0 9 0 0 9
λ1 - 0.0000 0.124489 0.0003 0.05000 0.694 0.05000 0.696 - 0.0444
0.089537 0 5 0 8 0.12946
β1 0.828529 0.0000 0.550209 0.0000 0.60000 0.002 0.60000 0.000 0.22349 0.0001
0 4 0 2 9
α2 -1.02E- 0.0001 2.86E-08 0.0000 -2.6E-08 0.989 -3.91E- 0.990 -4.8E-06 0.0113

16
 06 2 08 9
475

476

477

478

479Movement of Stock Markets, Exchange Rates of BRICS economies and oil prices (2005-2015)
480especially in the financial crises of 2007-2008

481 India China

9 6.8

6.4
8
6.0

5.6
7
5.2

6 4.8

4.4
5
4.0

3.6
4
3.2

3 2.8
05 06 07 08 09 10 11 12 13 14 15 05 06 07 08 09 10 11 12 13 14 15

482 BSE INR OP SSE CNY OP

483 South Africa Russia

6 7

5
6

4
5

4
2

3
1

0 2
05 06 07 08 09 10 11 12 13 14 15 05 06 07 08 09 10 11 12 13 14 15

484 JSE ZAR OP RTS RUBLE OP

485

486 This Graph is showing the movement of Indian stock market (BSE), Chinese stock
487 market (SSE), South African stock market (JSE) and Russian trading System (RTS)
488 along with Indian Rupee to USD exchange rate (INR) in contrast with oil prices
489 (OP), Chinese yen to USD exchange rate (CNY) in contrast with oil prices (OP),
490 South African ZAR to USD exchange rate (ZAR) in contrast with oil prices (OP)
491 and the movement of and Russian Ruble to USD exchange rate (Ruble) in contrast
492 with oil prices (OP).

17