Relationship between oil, stock prices and exchange rates: A vine copula based GARCH method

Riadh Aloui and Mohamed Ben Aissa ()

The North American Journal of Economics and Finance, 2016, vol. 37, issue C, 458-471

Abstract: In this paper, we apply a vine copula approach to investigate the dynamic relationship between energy, stock and currency markets. Dependence modeling using vine copulas offers a greater flexibility and permits the modeling of complex dependency patterns for high-dimensional distributions. Using a sample of more than 10years of daily return observations of the WTI crude oil, the Dow Jones Industrial average stock index and the trade weighted US dollar index returns, we find evidence of a significant and symmetric relationship between these variables. Considering different sample periods show that the dynamic of the relationship between returns is not constant over time. Our results indicate also that the dependence structure is highly affected by the financial crisis and Great Recession, over 2007–2009. Finally, there is evidence to suggest that the application of the vine copula model improves the accuracy of VaR estimates, compared to traditional approaches.

Keywords: Vine copulas; Dependence measures; Crude oil price; Stock index; Exchange rate (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:37:y:2016:i:c:p:458-471

DOI: 10.1016/j.najef.2016.05.002

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