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On the risk comovements between the crude oil market and U.S. dollar exchange rates

Author

Listed:
  • Gilles De Truchis

  • Benjamin Keddad

    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

Abstract

This article examines the volatility dependence between crude oil market and four US dollar exchange rates by means of both fractional cointegration and copula techniques. The former exploits the long memory behavior of volatility processes to investigate whether they are tied through a common long-run equilibrium. The latter is complementary as it allows exploring whether the market volatility is linked over the short run. The cointegration results conclude in favor of long-run independence for the Canadian and Japanese exchange rates while few evidence of long-run dependence is found for the European and British exchange rates. Concerning the copula analysis, we conclude in favor of weak dependence when we consider the static copulas. Considering the time-varying copulas, it appears that dependence is sensitive to market conditions as we found increasing linkages just before the 2008 market collapse and more recently, in the aftermath of the European debt crisis.

Suggested Citation

  • Gilles De Truchis & Benjamin Keddad, 2016. "On the risk comovements between the crude oil market and U.S. dollar exchange rates," Post-Print hal-01447859, HAL.
    • Handle: RePEc:hal:journl:hal-01447859
    DOI: 10.1016/j.econmod.2014.11.014
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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • 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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