Tail Dependence between Crude Oil Volatility Index and WTI Oil Price Movements during the COVID-19 Pandemic
Krzysztof Echaust () and
Małgorzata Just ()
Additional contact information
Krzysztof Echaust: Department of Operations Research and Mathematical Economics, Poznań University of Economics and Business, Al. Niepodległości 10, 61-875 Poznań, Poland
Małgorzata Just: Department of Finance and Accounting, Poznań University of Life Sciences, Wojska Polskiego 28, 60-637 Poznań, Poland
Energies, 2021, vol. 14, issue 14, 1-21
This study investigates the dependence between extreme returns of West Texas Intermediate (WTI) crude oil prices and the Crude Oil Volatility Index (OVX) changes as well as the predictive power of OVX to generate accurate Value at Risk (VaR) forecasts for crude oil. We focus on the COVID-19 pandemic period as the most violate in the history of the oil market. The static and dynamic conditional copula methodology is used to measure the tail dependence coefficient (TDC) between the variables. We found a strong relationship in the tail dependence between negative returns on crude oil and OVX changes and the tail independence for positive returns. The time-varying copula discloses the strongest tail dependence of negative oil price shocks and the index changes during the COVID-19 health crisis. The findings indicate the ability of the OVX index to be a fear gauge with respect to the oil market. However, we cannot confirm the ability of OVX to improve one day-ahead forecasts of the Value at Risk. The impact of investors’ expectations embedded in OVX on VaR forecasts seems to be negligible.
Keywords: OVX; crude oil; implied volatility; tail dependence; Value at Risk; GARCH-EVT (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:gam:jeners:v:14:y:2021:i:14:p:4147-:d:591470
Access Statistics for this article
Energies is currently edited by Prof. Dr. Enrico Sciubba
More articles in Energies from MDPI, Open Access Journal
Bibliographic data for series maintained by XML Conversion Team ().