The Tail Dependence and Lead-Lag Relationship in Financial Markets

Muhammad Mar’I () and Mehdi Seraj ()
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Muhammad Mar’I: Near East University
Mehdi Seraj: Near East University

Asia-Pacific Financial Markets, 2025, vol. 32, issue 3, No 10, 1048 pages

Abstract: Abstract The increased interconnection among financial markets and their susceptibility to economic and political fluctuations have spurred investors to seek out markets capable of offering hedging mechanisms for their diversified portfolios. This study aims to elucidate the intricate web of interdependence among various financial markets, namely oil Brent, global equity, green investment, Cryptocurrency, and Islamic markets, focusing on the analysis of tail dependence and lead-lag relationships within bullish and bearish contexts. Employing copula and wavelet techniques on data spanning from January 2014 to December 2022, the results indicate distinctive patterns of dependency and interaction among the examined financial markets. Notably, the observed dependency between specific markets does not extend uniformly across all markets, implying a bilateral influence that does not significantly impact the performance of unrelated markets. However, a noteworthy exception arises in the relationship between the Brent and crypto markets, where the influence may propagate to the green market during both bullish and bearish periods. Further analysis reveals that during bullish periods, the strongest dependence between Brent and green markets reaches 38%, contrasting with a 7% dependency during bearish periods. Additionally, a dependency of 25% is observed between global and green markets, consistent across both bullish and bearish conditions. Furthermore, the interaction between Brent and Crypto markets affects the green market by 5% during both bullish and bearish periods. These findings contribute to a deeper understanding of the dynamics within financial markets and offer valuable insights for investors seeking to manage risks and optimize their investment strategies.

Keywords: Copula; Wavelet; Lead-lag relationship; Dependency; Financial markets (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10690-024-09479-2

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