Modeling systemic risk and dependence structure between oil and stock markets using a variational mode decomposition-based copula method |
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| Institution: | 1. Department of Finance and Accounting, University of Tunis El Manar, Tunis, Tunisia;2. Department of Finance and Investment, College of Economics and Administrative Sciences, Al Imam Mohammad Ibn Saud Islamic University (IMSIU), P.O Box 5701 Riyadh, Saudi Arabia;3. Lebow College of Business, Drexel University, Philadelphia, United States;4. Energy and Sustainable Development (ESD), Montpellier Business School, Montpellier, France;5. COMSATS Institute of Information Technology, Islamabad, Pakistan;1. Department of Economics, Statistics and Finance, University of Calabria, Ponte Bucci, Rende, CS 87030, Italy;2. Department of Economic and Technological Change, Zentrum für Entwicklungsforschung (ZEF), Universität Bonn, Walter-Flex-Straße 3, Bonn 53113, Germany;1. Department of Finance and Accounting, University of Tunis El Manar, Tunis, Tunisia;2. Department of Economics and Finance, College of Economics and Political Science, Sultan Qaboos University, Muscat, Oman;3. Montpellier Business School, Montpellier, France;4. Faculty of Applied Economics, IBS Hyderabad, IFHE University Hyderabad, Hyderabad, India;5. USEK Business School, Holy Spirit University of Kaslik, PO BOX 446, Jounieh, Lebanon;1. Energy and Sustainable Development (ESD), Montpellier Business School, Montpellier, France;2. Department of Finance and Accounting, University of Tunis El Manar, Tunis, Tunisia;3. Department of Economics and Finance, College of Economics and Political Science, Sultan Qaboos University, Muscat, Oman;4. Lebow College of Business, Drexel University, Philadelphia, United States;5. Shaheed Zulfikar Ali Bhutto Institute of Science and Technology (SZABIST), Islamabad, Pakistan |
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| Abstract: | This study combines the variational mode decomposition (VMD) method and static and time-varying symmetric and asymmetric copula functions to examine the dependence structure between crude oil prices and major regional developed stock markets (S&P500, stoxx600, DJPI and TSX indexes) during bear, normal and bull markets under different investment horizons. Furthermore, it analyzes the upside and downside short- and long-run risk spillovers between oil and stock markets by quantifying three market risk measures, namely the value at risk (VaR), conditional VaR (CoVaR) and the delta CoVaR (∆CoVaR). The results show that there is a tail dependence between oil and all stock markets for the raw return series. By considering time horizons, we show that there is an average dependence between the considered markets for the short-run horizons. However, the tail dependence is also found for the long-run horizons between the oil and stock markets, with the exception of the S&P500 index which exhibits average dependence with the oil market. Moreover, we find strong evidence of up and down risk asymmetric spillovers from oil to stock markets and vice versa in the short-and long run horizons. Finally, the market risk spillovers are asymmetric over the time and investment horizons. |
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