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Time-frequency analysis of crude oil and S&P500 futures contracts

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  • Joseph McCarthy
  • Alexei G. Orlov

Abstract

We use frequency-domain techniques, namely wavelets and cross-spectra, to examine the association between the daily prices of crude oil futures and daily S&P500 futures closing prices over the past several decades. We investigate contemporaneous and lag--lead relationships in levels and returns. It is our belief that the wavelet and cross-spectral analyses employed in this paper offer insights regarding the relationship between oil prices and stock returns that are not apparent from a conventional time-domain framework. Our findings cast doubt on the purported negative relationship between oil and the U.S. stock market. Our analysis suggests that oil prices lead oil volume, and S&P500 trading volume leads S&P500 prices.

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File URL: http://hdl.handle.net/10.1080/14697688.2012.686669
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Quantitative Finance.

Volume (Year): 12 (2012)
Issue (Month): 12 (December)
Pages: 1893-1908

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Handle: RePEc:taf:quantf:v:12:y:2012:i:12:p:1893-1908

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Cited by:
  1. Tsangyao Chang & Xiao-lin Li & Stephen M. Miller & Mehmet Balcilar & Rangan Gupta, 2013. "The Co-Movement and Causality between the U.S. Real Estate and Stock Markets in the Time and Frequency Domains," Working papers 2013-34, University of Connecticut, Department of Economics.

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