A framework for Measuring the Dynamics Connections of Volatility in Oil and Financial Markets

Investigating connections between financial and oil markets is important for investors and policy makers. This knowledge allows for appropriate decision making. In this paper, we measure the dynamic connections of selected stock markets in the Middle East with oil markets, gold, dollar index and euro-dollar and pound-dollar exchange rates during the period February 2007 to August 2019 in networks with different weekly horizons. In this paper, we intend to evaluate the pairwise impact of crude oil and Middle East stock markets, in particular on the Tehran Stock Exchange, and to analyze this variance using different time horizons. The results show that in all time horizons the variance of prediction error in most markets is due to the shocks within each market. The Saudi Arabian Stock Exchange has the most impact on other Middle Eastern stock markets. The dynamic connections between oil and financial decreases over time. The most important factor that impacts financial markets is conditions in neighbouring stock markets, except the Tehran Stock Exchange. Dynamic connections of the gold market with other markets is not significant. Therefore, it can be used as a tool to hedge risk.