Modeling stock-oil co-dependence with Dynamic Stochastic MIDAS Copula models

Hoang Nguyen and Audrone Virbickaite

No 2022:5, Working Papers from Örebro University, School of Business

Abstract: Stock and oil relationship is usually time-varying and depends on the current economic conditions. In this study, we propose a new Dynamic Stochastic Mixed data frequency sampling (DSM) copula model, that decomposes the stock-oil relationship into a short-run dynamic stochastic component and a long-run component, governed by related macro- nance variables. We nd that in ation/interest rate, uncertainty and liquidity factors are the main drivers of the long-run co-dependence. We show that investment portfolios, based on the proposed DSM copula model, are more accurate and produce better economic outcomes as compared to other alternatives.

Keywords: Stock-Oil; Copula; MIDAS; SMC; Portfolio allocation; Hedging (search for similar items in EconPapers)
JEL-codes: C32 C52 C58 G11 G12 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2022-05-19
New Economics Papers: this item is included in nep-ecm, nep-ene and nep-mac
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Journal Article: Modeling stock-oil co-dependence with Dynamic Stochastic MIDAS Copula models (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:oruesi:2022_005

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