A wavelet analysis of oil price volatility dynamic
AbstractIn this the paper we investigate the oil price volatility, by studying the causal relationships between different volatilities captured at different time scales. We first decompose the oil price volatility at various scales of resolution or frequency ranges by using wavelet analysis. We then explore the causalities between absolute returns of oil prices at different time scales. As traditional Granger causality test, designed to detect linear causality, is ineffective in uncovering certain nonlinear causal relationships, we use the nonlinear causality test introduced by Péguin-Feissolle and Teräsvirta (1999) and Péguin-Feissolle, Strikholm and Teräsvirta (2008). Our results confirm the fact that the vertical dependence is a strong stylised fact of oil returns volatility. But, the main finding consists on the presence of a feed- back effect from high frequency traders to low frequency traders. In contrast to Gençay et al. (2010), we prove that high frequency shocks could have an impact outside their boundaries and reach the long term traders.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by AccessEcon in its journal Economics Bulletin.
Volume (Year): 31 (2011)
Issue (Month): 1 ()
Contact details of provider:
Causality; Wavelet decomposition; oil price volatility;
Find related papers by JEL classification:
- C5 - Mathematical and Quantitative Methods - - Econometric Modeling
- G1 - Financial Economics - - General Financial Markets
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Anne Péguin-Feissolle & Birgit Strikholm & Timo Teräsvirta, 2008.
"Testing the Granger noncausality hypothesis in stationary nonlinear models of unknown functional form,"
CREATES Research Papers
2008-19, School of Economics and Management, University of Aarhus.
- Péguin-Feissolle, Anne & Strikholm, Birgit & Teräsvirta, Timo, 2007. "Testing the Granger noncausality hypothesis in stationary nonlinear models of unknown functional form," Working Paper Series in Economics and Finance 672, Stockholm School of Economics, revised 18 Jan 2012.
- Virginie Coudert & Valérie Mignon & Alexis Penot, 2008. "Oil Price and the Dollar," Post-Print halshs-00353404, HAL.
- Ramazan Gencay & Faruk Selcuk, 2004.
"Asymmetry of Information Flow Between Volatilities Across Time Scales,"
Econometric Society 2004 North American Winter Meetings
90, Econometric Society.
- Ramazan Gencay & Nikola Gradojevic & Faruk Selcuk & Brandon Whitcher, 2010. "Asymmetry of information flow between volatilities across time scales," Quantitative Finance, Taylor & Francis Journals, vol. 10(8), pages 895-915.
- Ramazan Gencay & Nikola Gradojevic & Faruk Selcuk & Brandon Whitcher, 2009. "Asymmetry of Information Flow Between Volatilities Across Time Scales," Working Paper Series 27_09, The Rimini Centre for Economic Analysis, revised Jan 2009.
- Benassy-Quere, Agnes & Mignon, Valerie & Penot, Alexis, 2007.
"China and the relationship between the oil price and the dollar,"
Elsevier, vol. 35(11), pages 5795-5805, November.
- Agnès Bénassy-Quéré & Valérie Mignon & Alexis Penot, 2005. "China and the Relationship Between the Oil Price and the Dollar," Working Papers 2005-16, CEPII research center.
- Benhmad, François, 2013. "Bull or bear markets: A wavelet dynamic correlation perspective," Economic Modelling, Elsevier, vol. 32(C), pages 576-591.
- Benhmad, François, 2013. "Dynamic cyclical comovements between oil prices and US GDP: A wavelet perspective," Energy Policy, Elsevier, vol. 57(C), pages 141-151.
- Benhmad, François, 2012. "Modeling nonlinear Granger causality between the oil price and U.S. dollar: A wavelet based approach," Economic Modelling, Elsevier, vol. 29(4), pages 1505-1514.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (John P. Conley).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.