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Oil price and the automobile industry: Dynamic connectedness and portfolio implications with downside risk

Prachi Jain, Debasish Maitra and Sang Hoon Kang

Energy Economics, 2023, vol. 119, issue C

Abstract: The paper examines the interactions of downside risks between crude oil and the automobile sector through the employment of Diebold and Yilmaz (2012) and Diebold and Yılmaz (2014) framework in a static and time-varying perspective. The network connectedness is found to intensify during the periods of the Global Financial Crisis (2007-09) and the COVID-19 pandemic (2020-21). Crude oil remains a net receiver of downside risks along with the automobile firms such as FAW and SAIC while Daimler, BMW, and Renault are the prominent transmitters of downside risk in the network. Further, we find that the net pairwise spillover of downside risk of oil on automobile stocks is time-variant. The risk diversification strategies using optimal portfolios that minimise VaR95, CVaR95, and maximise quadratic utility gains are constructed with oil futures contracts and evaluated for their hedging efficiency and net utility gains. The overall hedging efficiency and net utility gains are highest during the Global Financial crisis period, followed by COVID-19, the post-crisis, and the pre-crisis periods. The findings hold significance for investors, fund managers, and policymakers.

Keywords: Oil price; Automobiles; Downside risk spillover; Portfolio diversification (search for similar items in EconPapers)
JEL-codes: G1 G11 (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:119:y:2023:i:c:s014098832300035x

DOI: 10.1016/j.eneco.2023.106537

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