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Oil price density forecasts: Exploring the linkages with stock markets

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  • Francesco Ravazzolo

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  • Marco J. Lombardi

    ()

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.

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Bibliographic Info

Paper provided by Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School in its series Working Papers with number 0008.

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Length: 29 pages
Date of creation: Dec 2012
Date of revision:
Handle: RePEc:bny:wpaper:0008

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Keywords: Oil price; stock price; density forecasting; correlation; Bayesian DCC;

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References

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Cited by:
  1. Marcelo Bianconi & Joe A. Yoshino, 2013. "Risk Factors and Value at Risk in Publicly Trades Companies of the Nonrenewable Energy Sector," Discussion Papers Series, Department of Economics, Tufts University 0773, Department of Economics, Tufts University.

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