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Multi-scale Features of Interdependence Between Oil Prices and Stock Prices

Author

Listed:
  • Ngo Thai Hung

    (University of Finance-Marketing)

  • Xuan Vinh Vo

    (University of Economics)

Abstract

This paper investigates the time-varying connectedness between oil prices and the stock prices in African markets. We employ a wavelet-based dynamic conditional correlation framework, which allows us to look into the time-varying correlation between oil and African stock markets in time and frequency domains. Empirical results show the interdependence between oil prices and African stock market prices are time-varying and spread across various wavelet scales. More importantly, the dynamic relationship between oil prices and stock returns in these countries varies more frequently and at a lower level in the short run. However, we find the long and medium-range co-movements between them except during the Covid-19 period when short-term integration increased considerably, which might help portfolio managers and investors mitigate risk. We identify the hedge ratios and optimal portfolio weights for practical implications based on the said assets' dynamic conditional correlation.

Suggested Citation

  • Ngo Thai Hung & Xuan Vinh Vo, 2023. "Multi-scale Features of Interdependence Between Oil Prices and Stock Prices," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 30(3), pages 475-504, September.
    • Handle: RePEc:kap:apfinm:v:30:y:2023:i:3:d:10.1007_s10690-022-09385-5
    DOI: 10.1007/s10690-022-09385-5
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    More about this item

    Keywords

    Africa stock markets; Oil prices; Wavelet; DCC-GARCH; Hedge ratio;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • G1 - Financial Economics - - General Financial Markets

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