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Uncertainty and crude oil returns

Author

Listed:
  • Riadh Aloui

    (University of Sousse)

  • Rangan Gupta

    (University of Pretoria)

  • Stephen M. Miller

    (University of Nevada, Las Vegas and University of Connecticut)

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 and into 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.

Suggested Citation

  • Riadh Aloui & Rangan Gupta & Stephen M. Miller, 2015. "Uncertainty and crude oil returns," Working papers 2015-03, University of Connecticut, Department of Economics.
  • Handle: RePEc:uct:uconnp:2015-03
    Note: Stephen Miller is the corresponding author
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Kang, Wensheng & Ratti, Ronald A. & Vespignani, Joaquin L., 2017. "Oil price shocks and policy uncertainty: New evidence on the effects of US and non-US oil production," Energy Economics, Elsevier, vol. 66(C), pages 536-546.
    2. repec:eee:eneeco:v:72:y:2018:i:c:p:331-340 is not listed on IDEAS
    3. repec:eee:eneeco:v:68:y:2017:i:c:p:53-65 is not listed on IDEAS
    4. repec:eee:energy:v:154:y:2018:i:c:p:328-336 is not listed on IDEAS
    5. Bonaccolto, G. & Caporin, M. & Gupta, R., 2018. "The dynamic impact of uncertainty in causing and forecasting the distribution of oil returns and risk," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 507(C), pages 446-469.
    6. repec:eee:eneeco:v:66:y:2017:i:c:p:559-570 is not listed on IDEAS
    7. repec:eee:eneeco:v:68:y:2017:i:c:p:141-150 is not listed on IDEAS
    8. repec:eee:ecmode:v:72:y:2018:i:c:p:42-53 is not listed on IDEAS
    9. Degiannakis, Stavros & Filis, George & Panagiotakopoulou, Sofia, 2018. "Oil price shocks and uncertainty: How stable is their relationship over time?," Economic Modelling, Elsevier, vol. 72(C), pages 42-53.
    10. Kang, Wensheng & Perez de Gracia, Fernando & Ratti, Ronald A., 2017. "Oil price shocks, policy uncertainty, and stock returns of oil and gas corporations," Journal of International Money and Finance, Elsevier, vol. 70(C), pages 344-359.

    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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