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Uncertainty and crude oil returns

Riadh Aloui (), Rangan Gupta () and Stephen Miller ()

Energy Economics, 2016, vol. 55, issue C, 92-100

Abstract: We use a copula approach to investigate the effect of uncertainty on crude-oil returns. Using copulas to construct multivariate distributions of time-series data permit the calculation of the dependence structure between the series independently of the marginal distributions. Further, we implement the copula estimation using a rolling window method to allow for a time-varying effect of equity and economic policy uncertainty on oil returns. The results show that higher uncertainty, as measured by equity and economic policy uncertainty indices, significantly increase crude-oil returns only during certain periods of time. That is, we find a positive dependence prior to the financial crisis and Great Recession. Interestingly, estimation of the copula over the entire sample period leads to a negative dependence between the equity and economic policy indices and the crude-oil return.

Keywords: Uncertainty; Oil shocks; Copulas (search for similar items in EconPapers)
JEL-codes: C22 C52 E61 Q31 (search for similar items in EconPapers)
Date: 2016
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Related works:
Working Paper: Uncertainty and Crude Oil Returns (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:55:y:2016:i:c:p:92-100

DOI: 10.1016/j.eneco.2016.01.012

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