Multi-Horizon Dependence between Crude Oil and East Asian Stock Markets and Implications in Risk Management

Xiaojing Cai, Shigeyuki Hamori, Lu Yang and Shuairu Tian
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Xiaojing Cai: Graduate School of Humanities and Social Sciences, Okayama University, 3-1-1, Tsushima-naka, Kita-ku, Okayama 700-8530, Japan
Shuairu Tian: Research Center of Finance, Shanghai Business School, 2271 West Zhongshan Road, Shanghai 200235, China

Energies, 2020, vol. 13, issue 2, 1-24

Abstract: This paper examines the dynamic dependence structure of crude oil and East Asian stock markets at multiple frequencies using wavelet and copulas. We also investigate risk management implications and diversification benefits of oil-stock portfolios by calculating and comparing risk and tail risk hedging performance. Our results provide strong evidence of time-varying dependence and asymmetric tail dependence between crude oil and East Asian stock markets at different frequencies. The level and fluctuation of their dependencies increase as time scale increases. Furthermore, we find the time-varying hedging benefits differ at investment horizons and reduced over the long run. Our results suggest that crude oil could be used as a hedge and safe haven against East Asian stock markets, especially in the short- and mid-term.

Keywords: crude oil; East Asian stock markets; wavelet; copula; dynamic hedging (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: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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