Analysis of the volatility spillover between standard and poor's 500 energy stock exchange and US bond yield

The volatility spillover in capital markets has become a subject that has gained the attention of researchers in recent years. The transmission of shocks, especially in times of crisis, to other markets is a consequence of the global economic system. Making decisions in situations of uncertainty driven by high volatility levels is one of the issues that investors and portfolio managers are challenging. Accordingly, studying the relationship between the stocks (the return of capital) and the bonds (the cost of borrowing), particularly in terms of expectations in the energy markets is essential. This study analyzes the volatility spillover between the Standard and Poor's 500 Energy stock exchange and the 2-year US bond yields for 2014-2018, using Engle (2002)'s Dynamic Conditional Correlation Conditional Volatility Model (DCC-GARCH). The model requires fewer parameters than the other conditional volatility models and allows time-varying conditional correlation. As a consequence, strong and positive volatility spillover effects observed between the two markets.