Financial stress and crude oil implied volatility: New evidence from continuous wavelet transformation framework

This study explores the theoretical possibility of co-movement and causality between crude oil implied volatility (OVX) financial stress in a wavelet framework. The paper contributes to existing literature at least three possible ways: (a) First, considers not only composite indicators but also uses categorical components such as Credit, Equity Valuation, Funding, Safe Assets Volatility. (b) Second, employs wavelet-based approach tracking continuous time-frequency space. Lastly, (c) while previous studies mainly use price changes assess relationship with stress, present evaluates role forward-looking (30-days ahead) uncertainty (proxied by OVX). findings indicate existence around phases economic turbulence. patterns strength co-movements are time-variant. direction is mostly positive, lead-lag reveals that OVX tends drive relationship. It further observed causalities variables bi-directional. However, relatively stronger transmitted from towards FSI. Furthermore, association assessed two different states economy, i.e., state distress tranquillity. suggest causal intensifies majorly during distress. Overall, outcome this could be useful policymakers investors anticipate impending mitigate its potential adverse impact.