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Correlated jumps in crude oil and gasoline during the Gulf War

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  • Ming-Chih Lee
  • Wan-Hsiu Cheng

Abstract

This article employs a bivariate poisson jump model to investigate the relationship between the volatility of crude oil and gasoline especially during the period of the Gulf War. We find that greater jumps occurring in crude oil returns will appear in gasoline returns at the same time, but the magnitude of the co-movements in volatility falls. The covariance is relatively smaller in the Second Gulf War vs. the first conflict. The volatility of crude oil is of significantly high levels during periods of the war, yet the volatility of gasoline is not as sensitive as crude oil, particularly in the second conflict. Furthermore, the jump that occurred by the war did not lead both spot prices to a high persistent level for a long period, which fits the feature of the jump models. All these findings are important to market traders and hedging strategies.

Suggested Citation

  • Ming-Chih Lee & Wan-Hsiu Cheng, 2007. "Correlated jumps in crude oil and gasoline during the Gulf War," Applied Economics, Taylor & Francis Journals, vol. 39(7), pages 903-913.
    • Handle: RePEc:taf:applec:v:39:y:2007:i:7:p:903-913
    DOI: 10.1080/00036840500474249
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    References listed on IDEAS

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    2. Jena, Sangram Keshari & Tiwari, Aviral Kumar & Hammoudeh, Shawkat & Roubaud, David, 2019. "Distributional predictability between commodity spot and futures: Evidence from nonparametric causality-in-quantiles tests," Energy Economics, Elsevier, vol. 78(C), pages 615-628.
    3. Tiwari, Aviral Kumar & Abakah, Emmanuel Joel Aikins & Bonsu, Christiana Osei & Karikari, Nana Kwasi & Hammoudeh, Shawkat, 2022. "The effects of public sentiments and feelings on stock market behavior: Evidence from Australia," Journal of Economic Behavior & Organization, Elsevier, vol. 193(C), pages 443-472.
    4. Chunyang Zhou & Chongfeng Wu & Weidong Xu, 2020. "Incorporating time‐varying jump intensities in the mean‐variance portfolio decisions," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(3), pages 460-478, March.
    5. Jeguirim, Khaled & Ben Salem, Leila, 2024. "Unveiling extreme dependencies between oil price shocks and inflation in Tunisia: Insights from a copula dcc garch approach," MPRA Paper 121616, University Library of Munich, Germany.

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