Spillovers and directional predictability between international energy commodities and their implications for optimal portfolio and hedging

Nader Trabelsi, Aviral Tiwari and Shawkat Hammoudeh

The North American Journal of Economics and Finance, 2022, vol. 62, issue C

Abstract: This study sheds a new light on the dependence and the directional predictability between eight major energy price returns, using the Cross-Quantilogram (CQ) and the Partial CQ (PCQ) analysis. The energy prices cover the time series for the U.S. natural gas and seven internationally traded crude oil types. The results reveal a significant directional predictability running from most of energy commodities returns to the OPEC basket and the very light Tapis crude oil returns. However, the quantile predictability in both directions is enabled only for the relations between the light Brent and the light WTI, and between the OPEC basket and the Malaysian Tapis. The time-varying predictability analysis reveals that there is a significant upper quantile dependence between these international energy commodities. Finally, we find that the TAPIS can be a good hedging vehicle for other energy markets. These findings may be instructive for both policymakers (in terms of financial stability) and market participants (in terms of performance).

Keywords: Dependence; Directional predictability; Cross-quantilogram; Energy market; Portfolio performance (search for similar items in EconPapers)
JEL-codes: C31 C58 G12 (search for similar items in EconPapers)
Date: 2022
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:ecofin:v:62:y:2022:i:c:s1062940822000675

DOI: 10.1016/j.najef.2022.101715

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