Nonlinear and asymmetric interconnectedness of crude oil with financial and commodity markets

Yarema Okhrin, Gazi Uddin and Muhammad Yahya

Energy Economics, 2023, vol. 125, issue C

Abstract: In light of the COVID-19 outbreak and the recent Russian war in Ukraine, this paper explores the asymmetric and nonlinear interconnectedness between financial and commodity markets using high-frequency intraday data. We employ cross-quantilograms (CQ), paired vine-based copulas, and copula vine-based regression analysis to examine the heterogeneous and asymmetrical connectedness among various assets. Our study presents several key findings: (1) connectedness among assets increases sharply during the COVID-19 pandemic and intensifies with the Russia–Ukraine war; (2) stronger tail dependence is observed in the lower tail, indicating asymmetric connectedness among the assets; (3) the S&P 500 and natural gas have a predictive influence on the crude oil market; and (4) increased uncertainty and volatility in global markets due to these events impact the interconnectedness of the assets in our study, particularly the dependence between crude oil and the other assets in the sample. These results have important implications for governmental agencies, policymakers, investors, and portfolio managers, emphasizing the need for a non-linear framework to capture heterogeneous and asymmetric connectedness dynamics under extreme market conditions.

Keywords: Crude oil; Vine copula; COVID-19; Russia–Ukraine; Complex dependence (search for similar items in EconPapers)
JEL-codes: C32 C55 C58 G11 G32 Q43 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:125:y:2023:i:c:s0140988323003511

DOI: 10.1016/j.eneco.2023.106853

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