Uncertainty and crude oil returns

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Authors

Aloui, Riadh
Gupta, Rangan
Miller, Stephen M.

Journal Title

Journal ISSN

Volume Title

Publisher

Elsevier

Abstract

We use a copula approach to investigate the effect of uncertainty on crude-oil returns. Using copulas to construct multivariate distributions of time-series data permit the calculation of the dependence structure between the series independently of the marginal distributions. Further, we implement the copula estimation using a rolling window method to allow for a time-varying effect of equity and economic policy uncertainty on oil returns. The results show that higher uncertainty, as measured by equity and economic policy uncertainty indices, significantly increase crude-oil returns only during certain periods of time. That is, we find a positive dependence prior to the financial crisis and Great Recession. Interestingly, estimation of the copula over the entire sample period leads to a negative dependence between the equity and economic policy indices and the crude-oil return.

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Keywords

Uncertainty, Oil shocks, Copulas

Sustainable Development Goals

Citation

Aloui, R, Gupta, R & Miller, SM 2016, 'Uncertainty and crude oil returns', Energy Economics, vol. 55, pp. 92-100.