scholarly journals Asymmetry of Risk Evolution in Crude Oil Market: From the Perspective of Dual Attributes of Oil

Energies ◽  
2021 ◽  
Vol 14 (13) ◽  
pp. 4063
Author(s):  
Yanqiong Liu ◽  
Zhenghui Li ◽  
Yanyan Yao ◽  
Hao Dong
Keyword(s):  
Crude Oil ◽  
Dynamic Characteristics ◽  
Sudden Change ◽  
Policy Recommendations ◽  
Key Factors ◽  
Monthly Data ◽  
Oil Market ◽  
Asymmetric Impact ◽  
Risk Evolution ◽  
Risk Degree

Investor emotional heterogeneity and oil dual attributes are the key factors that cause the asymmetry of risks in the international crude oil market. This paper uses the monthly data from April 2003 to October 2020 to identify the dynamic characteristics of oil’s commodity attribute and financial attribute, and this paper also analyzes the asymmetric characteristics of risk evolution and risk degree in the international crude oil market under the condition of oil returns heterogeneity. The empirical results show that: first, there is heterogeneity in the influence of oil attributes on the risk evolution and risk degree of the international crude oil market; second, the alternation of oil dual attributes has a significant asymmetric impact on the risk evolution of international crude oil market; third, the sudden change of international crude oil market risk caused by oil attributes is asymmetric under different oil returns trends. Based on the empirical conclusion, this paper puts forward the corresponding policy recommendations.

scholarly journals Asymmetric Risk Spillover of the International Crude Oil Market in the Perspective of Crude Oil Dual Attributes

2021 ◽  
Vol 9 ◽  
Author(s):  
Shuaishuai Jia ◽  
Hao Dong ◽  
Haowen Yang
Keyword(s):  
Crude Oil ◽  
Information Transmission ◽  
Financial Market ◽  
Investor Sentiment ◽  
Commodity Market ◽  
Monthly Data ◽  
Asymmetry Of Information ◽  
Empirical Results ◽  
Oil Market ◽  
Policy Suggestions

The heterogeneity of investor sentiment plays a key role in causing the asymmetry of information transmission patterns and transmission intensity between markets. This paper analyzes the asymmetric risk spillover between the international crude oil market and other markets, including commodity market and financial market, using monthly data from June 2006 to October 2020. The risk from the international crude oil market is separated into upside and downside risks. The empirical results suggest that, first, from the perspective of static spillover, the risk spillover between the international oil market and commodity market or financial market enhances significantly in response to rising return; second, from the perspective of dynamic spillover, the asymmetric risk spillover of international crude oil market manifests the key roles played by important events happening in the crude oil market and alternating attributes of crude oil. Some policy suggestions are proposed in light of these empirical results.

scholarly journals Dynamic Characteristics of Oil Attributes and Their Market Effects

Energies ◽  
2021 ◽  
Vol 14 (13) ◽  
pp. 3927
Author(s):  
Qingqing Hu ◽  
Tinghui Li ◽  
Xue Li ◽  
Hao Dong
Keyword(s):  
Crude Oil ◽  
Dynamic Characteristics ◽  
Market Returns ◽  
Policy Makers ◽  
Vector Autoregressive ◽  
Market Effects ◽  
Oil Market ◽  
Evolution Characteristics ◽  
Structural Vector Autoregressive Model ◽  
The Impact

The commercial and financial attributes of oil have significantly changed the evolution characteristics of prices and returns of the international crude oil market. Using monthly data from April 2003 to October 2020, this paper identifies dynamic characteristics of oil’s commercial and financial attributes based on the structural vector autoregressive model (SVAR) and further analyzes their market effects with different attributes. The result shows that there are situations of commercial and financial attributes dominating, and dual attributes co-dominating for oil. Furthermore, their durations account for 51%, 23%, and 26% respectively, of the full sample. Besides, the reactions of crude oil price or return to the different properties of oil are heterogeneous. Specifically, the dual attributes of oil play the most important role in the price evolution of the international crude oil market, which is 80.851. There are significant differences among the impact of different attributes of oil on the evolution of international crude oil market returns, which are 0.009, −0.008, and −0.004, respectively. Then, some relevant recommendations for policy-makers and investors based on the above research conclusions are also put forward.

Contango in Cushing? - Evidence on Financial-Physical Interactions in the U.S. Crude Oil Market

2012 ◽  
Author(s):  
Louis H. Ederington ◽  
Chitru S. Fernando ◽  
Kateryna V. Holland ◽  
Thomas K. Lee
Keyword(s):  
Crude Oil ◽  
Oil Market ◽  
Physical Interactions ◽  
The U.S

scholarly journals COVID-19 pandemic and the crude oil market risk: hedging options with non-energy financial innovations

2021 ◽  
Vol 7 (1) ◽  
Author(s):  
Afees A. Salisu ◽  
Kingsley Obiora
Keyword(s):  
Crude Oil ◽  
Structural Breaks ◽  
Exchange Traded Funds ◽  
Modeling Framework ◽  
Risk Hedging ◽  
Financial Innovations ◽  
Oil Market ◽  
Price Series ◽  
Hedging Effectiveness ◽  
Multivariate Volatility

AbstractThis study examines the hedging effectiveness of financial innovations against crude oil investment risks, both before and during the COVID-19 pandemic. We focus on the non-energy exchange traded funds (ETFs) as proxies for financial innovations given the potential positive correlation between energy variants and crude oil proxies. We employ a multivariate volatility modeling framework that accounts for important statistical features of the non-energy ETFs and oil price series in the computation of optimal weights and optimal hedging ratios. Results show evidence of hedging effectiveness for the financial innovations against oil market risks, with higher hedging performance observed during the pandemic. Overall, we show that sectoral financial innovations provide resilient investment options. Therefore, we propose that including the ETFs in an investment portfolio containing oil could improve risk-adjusted returns, especially in similar financial crisis as witnessed during the pandemic. In essence, our results are useful for investors in the global oil market seeking to maximize risk-adjusted returns when making investment decisions. Moreover, by exploring the role of structural breaks in the multivariate volatility framework, our attempts at establishing robustness for the results reveal that ignoring the same may lead to wrong conclusions about the hedging effectiveness.

Multivariate Markov-switching score-driven models: an application to the global crude oil market

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Szabolcs Blazsek ◽  
Alvaro Escribano ◽  
Adrian Licht
Keyword(s):  
Crude Oil ◽  
Moving Average ◽  
Local Level ◽  
Markov Switching ◽  
Impulse Response Functions ◽  
Common Trends ◽  
Vector Autoregressive ◽  
Oil Market ◽  
Long Run ◽  
Special Cases

Abstract A new class of multivariate nonlinear quasi-vector autoregressive (QVAR) models is introduced. It is a Markov switching score-driven model with stochastic seasonality for the multivariate t-distribution (MS-Seasonal-t-QVAR). As an extension, we allow for the possibility of having common-trends and nonlinear co-integration. Score-driven nonlinear updates of local level and seasonality are used, which are robust to outliers within each regime. We show that VAR integrated moving average (VARIMA) type filters are special cases of QVAR filters. Using exclusion, sign, and elasticity identification restrictions in MS-Seasonal-t-QVAR with common-trends, we provide short-run and long-run impulse response functions for the global crude oil market.

scholarly journals Assessing Market Risk in BRICS and Oil Markets: An Application of Markov Switching and Vine Copula

2021 ◽  
Vol 9 (2) ◽  
pp. 30
Author(s):  
John Weirstrass Muteba Mwamba ◽  
Sutene Mwambetania Mwambi
Keyword(s):  
South Africa ◽  
Crude Oil ◽  
South African ◽  
Asset Allocation ◽  
Markov Switching ◽  
Tail Dependence ◽  
Lower Tail ◽  
Oil Market ◽  
Oil Markets ◽  
Vine Copula

This paper investigates the dynamic tail dependence risk between BRICS economies and the world energy market, in the context of the COVID-19 financial crisis of 2020, in order to determine optimal investment decisions based on risk metrics. For this purpose, we employ a combination of novel statistical techniques, including Vector Autoregressive (VAR), Markov-switching GJR-GARCH, and vine copula methods. Using a data set consisting of daily stock and world crude oil prices, we find evidence of a structure break in the volatility process, consisting of high and low persistence volatility processes, with a high persistence in the probabilities of transition between lower and higher volatility regimes, as well as the presence of leverage effects. Furthermore, our results based on the C-vine copula confirm the existence of two types of tail dependence: symmetric tail dependence between South Africa and China, South Africa and Russia, and South Africa and India, and asymmetric lower tail dependence between South Africa and Brazil, and South Africa and crude oil. For the purpose of diversification in these markets, we formulate an asset allocation problem using raw returns, MS GARCH returns, and C-vine and R-vine copula-based returns, and optimize it using a Particle Swarm optimization algorithm with a rebalancing strategy. The results demonstrate an inverse relationship between the risk contribution and asset allocation of South Africa and the crude oil market, supporting the existence of a lower tail dependence between them. This suggests that, when South African stocks are in distress, investors tend to shift their holdings in the oil market. Similar results are found between Russia and crude oil, as well as Brazil and crude oil. In the symmetric tail, South African asset allocation is found to have a well-diversified relationship with that of China, Russia, and India, suggesting that these three markets might be good investment destinations when things are not good in South Africa, and vice versa.

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