Multi-horizon dependence between crude oil and east Asian stock markets and implications in risk management

Xiaojing Cai, Shigeyuki Hamori, Lu Yang, Shuairu Tian

Research output: Contribution to journalArticle

Abstract

This paper examines the dynamic dependence structure of crude oil and East Asian stock markets at multiple frequencies using wavelet and copulas. We also investigate risk management implications and diversification benefits of oil-stock portfolios by calculating and comparing risk and tail risk hedging performance. Our results provide strong evidence of time-varying dependence and asymmetric tail dependence between crude oil and East Asian stock markets at different frequencies. The level and fluctuation of their dependencies increase as time scale increases. Furthermore, we find the time-varying hedging benefits differ at investment horizons and reduced over the long run. Our results suggest that crude oil could be used as a hedge and safe haven against East Asian stock markets, especially in the short- and mid-term.

Original languageEnglish
Article number294
JournalEnergies
Volume13
Issue number2
DOIs
Publication statusPublished - Jan 1 2020

Keywords

  • Copula
  • Crude oil
  • Dynamic hedging
  • East Asian stock markets
  • Wavelet

ASJC Scopus subject areas

  • Renewable Energy, Sustainability and the Environment
  • Energy Engineering and Power Technology
  • Energy (miscellaneous)
  • Control and Optimization
  • Electrical and Electronic Engineering

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