The symmetrical and positive relationship between crude oil and nominal exchange rate returns

Kuang-Liang Chang

The North American Journal of Economics and Finance, 2014, vol. 29, issue C, 266-284

Abstract: This paper investigates both the static and dynamic relationships between daily crude oil returns and US dollar exchange rate returns using a test for symmetrical exceedance correlations and two mixture copulas. Empirical results demonstrate that the exceedance correlations between oil and exchange rate returns are both positive and symmetrical, indicating that the two return rates move in the same direction and that the relationship between them is symmetrical for the upper and lower quantiles. The crude oil-exchange rate relationship is sensitive to the sample period investigated. Before the 1998 financial crisis, exceedance correlations are close to zero, showing almost no correlation between the oil and exchange rate markets. However, the positive co-movement has significantly increased since the 2008 financial crisis. Furthermore, Kendall's tau coefficients of two symmetrized copulas greatly increase after the 2008 financial crisis, revealing that the probability of both returns moving in the same direction is higher than it is in the opposite direction.

Keywords: Crude oil; Exchange rate; Symmetric relationship; Exceedance correlation; Symmetrized copula (search for similar items in EconPapers)
JEL-codes: C58 F31 Q43 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:29:y:2014:i:c:p:266-284

DOI: 10.1016/j.najef.2014.07.001

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