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How do correlations of crude oil prices co-move? A grey correlation-based wavelet perspective

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Listed:
  • Jia, Xiaoliang
  • An, Haizhong
  • Fang, Wei
  • Sun, Xiaoqi
  • Huang, Xuan

Abstract

Previous research on the oil market has focused mainly on the static relationship between bivariate oil prices, ignoring the dynamic correlation of bivariate or multivariate oil prices. This study provides a novel perspective on multivariate dynamic correlations for studying the oil market by using an optimal wavelet analysis on the basis of grey correlation. We used China-Daqing and its three reference benchmark oil prices (Brent, Dubai and Minas) as empirical data. Our main findings are as follows. First, the time–frequency phenomena of the analysis results from one-to-one and many-to-one correlation time series support the hypothesis of the regional and global characteristics of the oil market, respectively. Second, the U-shaped wavelet variance plot indicates that the fluctuation intensity of the shortest and longest time–frequency domains plays a leading role in the dynamic process of oil price correlation. For the Chinese government, the oil price adjustment strategy in the short term should reduce the reference weights of Brent, and the long-term strategy should reduce the reference weights of Minas to avoid the risk of a single reference. The investor's portfolio management should pay more attention to the leading oil price of the corresponding period to make clear market timing. Third, the significant lead–lag relationships of oil price correlations showed a time-varying spread phenomenon of benchmark oil prices' relative influence on Daqing, which provides a useful time reference when crafting an oil price adjustment strategy and intertemporal arbitrage.

Suggested Citation

  • Jia, Xiaoliang & An, Haizhong & Fang, Wei & Sun, Xiaoqi & Huang, Xuan, 2015. "How do correlations of crude oil prices co-move? A grey correlation-based wavelet perspective," Energy Economics, Elsevier, vol. 49(C), pages 588-598.
  • Handle: RePEc:eee:eneeco:v:49:y:2015:i:c:p:588-598
    DOI: 10.1016/j.eneco.2015.03.008
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Jiang, Meihui & An, Haizhong & Jia, Xiaoliang & Sun, Xiaoqi, 2017. "The influence of global benchmark oil prices on the regional oil spot market in multi-period evolution," Energy, Elsevier, vol. 118(C), pages 742-752.
    2. Huang, Shupei & An, Haizhong & Gao, Xiangyun & Sun, Xiaoqi, 2017. "Do oil price asymmetric effects on the stock market persist in multiple time horizons?," Applied Energy, Elsevier, vol. 185(P2), pages 1799-1808.
    3. repec:eee:appene:v:221:y:2018:i:c:p:122-130 is not listed on IDEAS
    4. Huang, Shupei & An, Haizhong & Gao, Xiangyun & Huang, Xuan, 2016. "Time–frequency featured co-movement between the stock and prices of crude oil and gold," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 444(C), pages 985-995.
    5. Shupei Huang & Haizhong An & Xiangyun Gao & Meihui Jiang, 2016. "The Multiscale Fluctuations of the Correlation between Oil Price and Wind Energy Stock," Sustainability, MDPI, Open Access Journal, vol. 8(6), pages 1-14, June.
    6. repec:eee:phsmap:v:490:y:2018:i:c:p:1501-1512 is not listed on IDEAS
    7. repec:gam:jeners:v:10:y:2017:i:5:p:656-:d:97987 is not listed on IDEAS
    8. repec:eee:appene:v:220:y:2018:i:c:p:480-495 is not listed on IDEAS
    9. Jia, Xiaoliang & An, Haizhong & Sun, Xiaoqi & Huang, Xuan & Wang, Lijun, 2017. "Evolution of world crude oil market integration and diversification: A wavelet-based complex network perspective," Applied Energy, Elsevier, vol. 185(P2), pages 1788-1798.
    10. Huang, Shupei & An, Haizhong & Gao, Xiangyun & Wen, Shaobo & Jia, Xiaoliang, 2016. "The global interdependence among oil-equity nexuses," Energy, Elsevier, vol. 107(C), pages 259-271.
    11. Huang, Shupei & An, Haizhong & Gao, Xiangyun & Wen, Shaobo & Hao, Xiaoqing, 2017. "The multiscale impact of exchange rates on the oil-stock nexus: Evidence from China and Russia," Applied Energy, Elsevier, vol. 194(C), pages 667-678.
    12. Huang, Shupei & An, Haizhong & Gao, Xiangyun & Hao, Xiaoqing, 2016. "Unveiling heterogeneities of relations between the entire oil–stock interaction and its components across time scales," Energy Economics, Elsevier, vol. 59(C), pages 70-80.
    13. repec:eee:energy:v:139:y:2017:i:c:p:617-629 is not listed on IDEAS

    More about this item

    Keywords

    Oil prices; Dynamic correlation; Grey correlation; Wavelet;

    JEL classification:

    • P48 - Economic Systems - - Other Economic Systems - - - Political Economy; Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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