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Exploring the role of crude oil futures in portfolio diversification

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  • Hsu, Ching-Chi
  • Tsai, Wei-Che

Abstract

This study explores the potential diversification benefits of including crude oil futures in global portfolios. For this purpose, we assess the relationship between crude oil futures and international stock markets across different timeframes using static network connectedness and wavelet coherency analyses. The results show that crude oil exerts a significant influence on stock markets, particularly over the 128–256 day horizon, with this effect intensifying during epidemic periods. Our wavelet-based covariance analysis guides the calculation of optimal portfolio weights, revealing that these strategies outperform equal-weighted portfolios over longer horizons. Furthermore, crude oil futures receive higher allocations during periods of low market interdependence, offering valuable insights for risk minimization and dynamic portfolio management.

Suggested Citation

  • Hsu, Ching-Chi & Tsai, Wei-Che, 2025. "Exploring the role of crude oil futures in portfolio diversification," Journal of Multinational Financial Management, Elsevier, vol. 79(C).
    • Handle: RePEc:eee:mulfin:v:79:y:2025:i:c:s1042444x25000210
    DOI: 10.1016/j.mulfin.2025.100917
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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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