Total, Asymmetric and Frequency Connectedness Between Oil and Forex Markets

Jozef Baruník and Evžen Kočenda

No 7756, CESifo Working Paper Series from CESifo

Abstract: We analyze total, asymmetric and frequency connectedness between oil and forex markets using high-frequency, intra-day data over the period 2007 - 2017. By employing variance decompositions and their spectral representation in combination with realized semivariances to account for asymmetric and frequency connectedness, we obtain interesting results. We show that divergence in monetary policy regimes affects forex volatility spillovers but that adding oil to a forex portfolio decreases the total connectedness of the mixed portfolio. Asymmetries in connectedness are relatively small. While negative shocks dominate forex volatility connectedness, positive shocks prevail when oil and forex markets are assessed jointly. Frequency connectedness is largely driven by uncertainty shocks and to a lesser extent by liquidity shocks, which impact long-term connectedness the most and lead to its dramatic increase during periods of distress.

Keywords: crude oil; forex market; volatility; connectedness; spillovers; semivariance; asymmetric effects; frequency connectedness (search for similar items in EconPapers)
JEL-codes: C18 C58 F31 G15 O13 Q31 Q43 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-ene
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Citations: View citations in EconPapers (29)

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Related works:
Journal Article: Total, Asymmetric and Frequency Connectedness between Oil and Forex Markets (2019)
Journal Article: Total, Asymmetric and Frequency Connectedness between Oil and Forex Markets (2019)
Working Paper: Total, asymmetric and frequency connectedness between oil and forex markets (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_7756

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