Oil price density forecasts: Exploring the linkages with stock markets

Francesco Ravazzolo and Marco Lombardi

No No 3/2012, Working Papers from Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School

Abstract: In the recent years several commentators hinted at an increase of the correlation between equity and commodity prices, and blamed investment in commodity-related products for this. First, this paper investigates such claims by looking at various measures of correlation. Next, we assess to what extent correlations between oil and equity prices can be exploited for asset allocation. We develop a time-varying Bayesian Dynamic Conditional Correlation model for volatilities and correlations and find that joint modelling of oil and equity prices produces more accurate point and density forecasts for oil which lead to substantial benefits in portfolio wealth.

Keywords: Oil price; stock price; density forecasting; correlation; Bayesian DCC (search for similar items in EconPapers)
JEL-codes: C11 C15 C53 E17 G17 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2012-12
New Economics Papers: this item is included in nep-ene, nep-fmk and nep-for
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Working Paper: Oil price density forecasts: exploring the linkages with stock markets (2012)
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