Volatility Spillovers between Oil Prices and Stock Markets in Oil-Importing Countries: Evidence from a DCC-GARCH Model

This study investigates the volatility spillover dynamics between international oil prices and stock markets in selected oil-importing countries using the Dynamic Conditional Correlation Generalized Autoregressive Conditional Heteroskedasticity (DCC-GARCH) framework. The model captures time-varying correlations and conditional volatility transmission, allowing for a comprehensive assessment of both short-term and persistent spillover effects. The empirical findings reveal significant joint ARCH and GARCH effects for most oil-importing stock markets, indicating the presence of both immediate volatility spillovers from oil prices and persistent transmission of uncertainty over time. However, notable heterogeneity across countries is observed. In particular, the Indian stock market exhibits insignificant joint ARCH and GARCH effects, suggesting a relatively weaker volatility linkage with oil prices, while short-term volatility transmission is found to be insignificant for the Korean stock market. For the remaining countries, oil price shocks significantly influence stock market volatility and its persistence. These results highlight that oil-induced financial risk is time-varying and country-specific in oil-importing economies. The findings have important implications for portfolio diversification, dynamic hedging strategies, and macro-financial policy formulation aimed at mitigating the adverse effects of oil price uncertainty on equity markets.