Dynamic dependence between ETFs and crude oil prices by using EGARCH-Copula approach

Muhammad Naeem, Zaghum Umar, Sheraz Ahmed and El Mehdi Ferrouhi

Physica A: Statistical Mechanics and its Applications, 2020, vol. 557, issue C

Abstract: In this study, we examine the average and extreme dependence between Exchange Traded Funds ETFs (both energy & commodity) and WTI crude oil prices by using EGARCH-copula models. We use both static (Normal, Student-t, Gumbel and Clayton) and time-varying (Normal and SJC) copulas to explore both average and extreme dependence. Based on the Akaike information criterion (AIC), our results show that time-varying copulas outperform the static copulas. Further, we have found strong enough positive correlations of energy and commodity ETFs with oil prices to suggest that they could be used as a tool for managing oil price risk. Also, contrasting results of time-varying copulas with each other provide useful information regarding the hedge or safe-haven properties of energy and commodity ETFs.

Keywords: Crude-oil prices; Dependence; EGARCH; Time-varying copula; ETFs (search for similar items in EconPapers)
JEL-codes: C22 C46 C52 G32 Q43 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:557:y:2020:i:c:s0378437120304581

DOI: 10.1016/j.physa.2020.124885

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