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Uncertainty and crude oil returns

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  • Aloui, Riadh
  • Gupta, Rangan
  • Miller, Stephen M.

Abstract

We use a copula approach to investigate the effect of uncertainty on crude-oil returns. Using copulas to construct multivariate distributions of time-series data permit the calculation of the dependence structure between the series independently of the marginal distributions. Further, we implement the copula estimation using a rolling window method to allow for a time-varying effect of equity and economic policy uncertainty on oil returns. The results show that higher uncertainty, as measured by equity and economic policy uncertainty indices, significantly increase crude-oil returns only during certain periods of time. That is, we find a positive dependence prior to the financial crisis and Great Recession. Interestingly, estimation of the copula over the entire sample period leads to a negative dependence between the equity and economic policy indices and the crude-oil return.

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  • Aloui, Riadh & Gupta, Rangan & Miller, Stephen M., 2016. "Uncertainty and crude oil returns," Energy Economics, Elsevier, vol. 55(C), pages 92-100.
  • Handle: RePEc:eee:eneeco:v:55:y:2016:i:c:p:92-100
    DOI: 10.1016/j.eneco.2016.01.012
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    Cited by:

    1. Claudiu Albulescu, 2020. "Do COVID-19 and crude oil prices drive the US economic policy uncertainty?," Working Papers hal-02509450, HAL.
    2. Claudiu Albulescu, 2020. "Coronavirus and oil price crash," Papers 2003.06184, arXiv.org, revised Mar 2020.
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    24. Guglielmo Maria Caporale & Menelaos Karanasos & Stavroula Yfanti, 2019. "Macro-Financial Linkages in the High-Frequency Domain: The Effects of Uncertainty on Realized Volatility," CESifo Working Paper Series 8000, CESifo.

    More about this item

    Keywords

    Uncertainty; Oil shocks; Copulas;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices

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