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Dynamic linkages among global oil market, agricultural raw material markets and metal markets: An application of wavelet and copula approaches

Yonghong Jiang, Jiashun Lao, Bin Mo and He Nie

Physica A: Statistical Mechanics and its Applications, 2018, vol. 508, issue C, 265-279

Abstract: This paper aims to study the dynamic dependence among global oil market, agricultural raw material markets and metal markets. For this purpose, the wavelet squared coherence approach is used to capture the interdependence level and lag–lead relationship of three markets across time at different frequencies. We also combine wavelet and copula to analyze tail dependence among the three markets at different time-horizons. The results reveal that global oil market lags behind agricultural raw material markets but leads metal markets while metal markets change in parallel with agricultural raw material markets. In addition, the long-term linkages are stronger and more lasting than the corresponding short-term ones. The results also suggest that the dependence structure changes over time and the financial crisis has a great shock to the degree of dependencies among the three markets. All of these results are not only beneficial to optimize asset allocation and risk management for investors, but also play significant roles in maintaining the stability of the financial market.

Keywords: Wavelet squared coherence; Copula; Tail dependence; Global oil market; Agricultural raw material markets; Metal markets (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1016/j.physa.2018.05.092

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