Risk Transmission from Oil and Natural Gas Futures to Emerging Market Mutual Funds

ABSTRACT

This study evaluates the impacts of energy markets on emerging market mutual funds (EMMFs). In particular, we investigate the volatility transmission between these funds and the oil and natural gas prices. The findings suggest significant risk spillover from the energy markets to EMMFs. Furthermore, we find a large number of EMMFs’ risk transmitting to oil prices and almost all of the EMMFs’ risk transmitting to natural gas prices. By dividing the sample into two (before and after 2008), we find the EMMFs’ influence on the oil market decreasing after this turbulent period. Our results have important implications for mutual fund managers and investors.

KEY WORDS:

• emerging market mutual funds
• natural gas
• oil
• volatility spillover

Notes

^1. The costs and benefits related to investing in mutual funds is still a highly debated issue. While the scope of this study is not to discuss their viability one way or the other, readers interested in this issue can refer to Wermers (2000), Guercio and Reuter (2014), Kacperczyk et al. (2016), and others for further information.

^2. We sincerely thank Saban Nazlioglu for providing the EViews codes for this test.

^3. See for example Nazlioglu, Erdem, and Soytas (2013), Nazlioglu, Soytas, and Gupta (2015), and Nazlioglu, Hammoudeh, and Gupta (2015).