Crude oil prices in times of crisis: The role of Covid-19 and historical events

Tarek Bouazizi (), Khaled Guesmi, Emilios Galariotis and Samuel A. Vigne

International Review of Financial Analysis, 2024, vol. 91, issue C

Abstract: Oil markets have faced several crises since 1986, with the most recent global economic downturn linked to the Covid-19 pandemic leading to significant demand and supply shocks in the critical oil market. Given that the impact of crises on oil prices has not been uniform we aim to accurately assess oil price volatility during crises by implementing an ARMA(r,s)-Spline-GJR(p,q) model that accounts for volatility persistence. Principal components analysis (PCA) is employed to study the correlation between various crises and their impact on oil prices, while because of the limited number of observations available, PLS regressions are used to study the Covid-19 Crisis. The findings reveal higher levels of spline conditional volatility during the Covid-19 Crisis, providing novel evidence of the correlation between this pandemic and other major crises. Through the NIPALS algorithm, we identify 13 primary components that show a correlation between historical crises and the Covid-19 Crisis. In contrast, PLS-2 regressions indicate a strong correlation between historical crises and the Covid-19 Crisis in only six principal components. These results can help investors, hedgers, speculators, and governments to estimate, predict and make informed decisions as soon as signs of a crisis appear.

Keywords: NIPALS algorithm; PLS regression; ARMA-spline-GJR models; GARCH model; WTI crude oil prices; Covid-19 crisis (search for similar items in EconPapers)
JEL-codes: C38 C53 C58 H12 Q41 Q47 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1057521923004714
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:91:y:2024:i:c:s1057521923004714

DOI: 10.1016/j.irfa.2023.102955

Access Statistics for this article

International Review of Financial Analysis is currently edited by B.M. Lucey

More articles in International Review of Financial Analysis from Elsevier
Bibliographic data for series maintained by Catherine Liu ().