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Modeling the joint dynamic value at risk of the volatility index, oil price, and exchange rate

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  • Peng, Wei
  • Hu, Shichao
  • Chen, Wang
  • Zeng, Yu-feng
  • Yang, Lu

Abstract

In this study, we investigate how the volatility index (VIX) and oil price influence the foreign exchange rate based on a conditional autoregressive value at risk model. We find that the oil price affects the value at risk (VaR) of exchange rates of oil-importing and oil-exporting countries differently. Further, the VIX as a volatility measure can only influence the tail risk of these currencies when the US financial market fluctuates significantly. In addition, we find that there is a significant increase in the volatility of the VaR of these currencies after the financial crisis. Our empirical results would provide useful information for investors.

Suggested Citation

  • Peng, Wei & Hu, Shichao & Chen, Wang & Zeng, Yu-feng & Yang, Lu, 2019. "Modeling the joint dynamic value at risk of the volatility index, oil price, and exchange rate," International Review of Economics & Finance, Elsevier, vol. 59(C), pages 137-149.
    • Handle: RePEc:eee:reveco:v:59:y:2019:i:c:p:137-149
    DOI: 10.1016/j.iref.2018.08.014
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    4. Seyed Mohammad Sina Seyfi & Azin Sharifi & Hamidreza Arian, 2020. "Portfolio Risk Measurement Using a Mixture Simulation Approach," Papers 2011.07994, arXiv.org.
    5. Maud Korley & Evangelos Giouvris, 2022. "The Impact of Oil Price and Oil Volatility Index (OVX) on the Exchange Rate in Sub-Saharan Africa: Evidence from Oil Importing/Exporting Countries," Economies, MDPI, vol. 10(11), pages 1-29, November.
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    7. Lu Yang & Shigeyuki Hamori, 2020. "Forecasts of Value-at-Risk and Expected Shortfall in the Crude Oil Market: A Wavelet-Based Semiparametric Approach," Energies, MDPI, vol. 13(14), pages 1-27, July.
    8. Yang, Lu & Cui, Xue & Yang, Lei & Hamori, Shigeyuki & Cai, Xiaojing, 2023. "Risk spillover from international financial markets and China's macro-economy: A MIDAS-CoVaR-QR model," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 55-69.
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    More about this item

    Keywords

    Conditional autoregressive value at risk; Value at risk; Volatility index; Oil price; Exchange rate;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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