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Detrended cross-correlation analysis in quantiles between oil price and the US stock market

Ousama Ben-Salha and Khaled Mokni ()
Authors registered in the RePEc Author Service: Ousama Ben Salha

Energy, 2022, vol. 242, issue C

Abstract: Previous studies using the detrended cross-correlation analysis (DCCA) did not account for the conditional distribution of time series. To address this shortcoming, this paper extends the DCCA in a quantile-based framework to investigate the relationship between WTI crude oil spot price and the S&P500 index from January 1986 to August 2021 under different oil and stock markets conditions. The approach introduced in this research brings out new and exciting findings on the well-debated oil price-stock markets nexus. By considering four possible scenarios regarding the oil and stock markets conditions, results suggest that the sign and strength of cross-correlations between oil and stock markets vary according to the time scale and market condition. These findings are robust when using daily data and the Brent crude oil spot price. Furthermore, when analyzing the effect of the COVID-19 pandemic, findings generally reveal a rise in correlations between the two markets during the pandemic, suggesting the existence of contagion effects between them. Policy implications for both investors and market regulators are subsequently proposed.

Keywords: Crude oil price; S&500; Detrended cross-correlation analysis; Quantile; COVID-19 (search for similar items in EconPapers)
JEL-codes: C01 C21 G10 G15 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:energy:v:242:y:2022:i:c:s0360544221031674

DOI: 10.1016/j.energy.2021.122918

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