The effect of US economic policy uncertainty on market risk of international crude oil and the portfolio strategy

Yu Zhao and Jichan Zhu

Economic Research-Ekonomska Istraživanja, 2023, vol. 36, issue 2, 2142639

Abstract: The paper investigates the impact of US economic policy uncertainty (EPU) on major crude oil markets. GARCH-tDDC-Copula model is constructed to study the spillover effect of US EPU on the international crude oil market risk, and then the median-CoVaR portfolio model is constructed to discuss the optimal portfolio strategy of crude oil importers when US EPU is in different states. Results show that the spillover effect of US EPU on international crude oil market risk is nonlinear, asymmetric and time-varying. When US EPU increases from the average level to the 0.95 quantile level, the price reduction risk of crude oil market in Brent, Dubai and Western Texas increases by 37.26%, 42.66%, and 39.28% respectively, and the price increase risk increases by 7.22%, 6.64%, and 7.53% respectively. Compared with the median-VaR portfolio strategy and the equal-weight combination portfolio strategy, the advantage of the median-CoVaR model is that it can achieve ‘targeted’ management for asset risk under specific conditions. When US EPU peak occurs, crude oil importers can formulate a basket price strategies with dynamic weighted based on the median-CoVaR model, which can better reduce the depreciation risk of crude oil assets. The findings have important implications for importers and investors.

Date: 2023
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/1331677X.2022.2142639 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:reroxx:v:36:y:2023:i:2:p:2142639

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/rero20

DOI: 10.1080/1331677X.2022.2142639

Access Statistics for this article

Economic Research-Ekonomska Istraživanja is currently edited by Marinko Skare

More articles in Economic Research-Ekonomska Istraživanja from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().