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Stock Market Returns and Oil Price Shocks: A CoVaR Analysis based on Dynamic Vine Copula Models

Author

Listed:
  • Julia Kielmann

    (Technical University of Munich, Germany)

  • Hans Manner

    (University of Graz, Austria)

  • Aleksey Min

    (Technical University of Munich, Germany)

Abstract

Crude oil plays a significant role in economic developments in the world. Understanding the relationship between oil price changes and stock market returns helps to improve portfolio strategies and risk positions. Kilian (2009) proposes to decompose the oil price into three types of oil price shocks by using a structural vector autoregression (SVAR) model. This paper investigates the dynamic, non-linear dependence and risk spillover effects between BRICS stock returns and the different types of oil price shocks using an appropriate multivariate and dynamic copula model. Risk is measured using the conditional Value-at-Risk, conditioning on one or more simultaneous oil and stock market shocks. For this purpose, a D-vine based quantile regression model and the GAS copula model are combined. Our results show, inter alia, that the early stages of the Covid-19 crisis leads to increasing risk levels in the BRICS stock markets except for the Chinese one, which has recovered quickly and therefore shows no changes in the risk level.

Suggested Citation

  • Julia Kielmann & Hans Manner & Aleksey Min, 2021. "Stock Market Returns and Oil Price Shocks: A CoVaR Analysis based on Dynamic Vine Copula Models," Graz Economics Papers 2021-01, University of Graz, Department of Economics.
    • Handle: RePEc:grz:wpaper:2021-01
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    References listed on IDEAS

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    Cited by:

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    2. Okhrin, Yarema & Uddin, Gazi Salah & Yahya, Muhammad, 2023. "Nonlinear and asymmetric interconnectedness of crude oil with financial and commodity markets," Energy Economics, Elsevier, vol. 125(C).
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    4. Yao, Can-Zhong & Li, Min-Jian, 2023. "GARCH-MIDAS-GAS-copula model for CoVaR and risk spillover in stock markets," The North American Journal of Economics and Finance, Elsevier, vol. 66(C).

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    More about this item

    Keywords

    Oil prices; risk management; time-varying copula; D-vine copula; CoVaR.;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: 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
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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