The Relations of Oil Price Change with Fear Gauges in Global Political and Economic Environment

Jeng-Bau Lin and Wei Tsai
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Jeng-Bau Lin: Department of Business Administration, National Chung-Hsing University, Taichung 402, Taiwan
Wei Tsai: Department of Business Administration, National Chung-Hsing University, Taichung 402, Taiwan

Energies, 2019, vol. 12, issue 15, 1-17

Abstract: The oil price time series data can be affected by major global political and economic events, which would result in structural changes that could lead to biased estimations. By adopting the Bai and Perron model this paper found that there were six structural breaks in the Brent oil price due to major global events and that ARDL-ECM cointegration exists only between oil price and stock market volatility index ( VIX ) throughout the sampling period. However, cointegration relations were found between oil price and Crude Oil Volatility Index ( OVX ) in the second and fourth sub-periods, and also between oil price and VIX in the second, third, fourth, sixth, and seventh sub-periods. Furthermore, the cointegration relation coupled with correlation analysis indicates a long-term equilibrium positive (negative) relation between the two variables. Such relations existed between the price and the two fear gauges, respectively, only for some specific sub-periods, implying that OVX seemed to be better than VIX in predicting oil price changes. We suggest that the investors in the global oil market must pay attention to not only the impacts of major global political and economic events on oil price, but also the positive or negative correlations between oil price and fear gauge.

Keywords: multiple structural changes; fear gauge; sequential procedure methods; global political and economic events; short-term speculative spread (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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