A0566
Title: Nonlinear interconnectedness of crude oil and financial markets
Authors: Yarema Okhrin - University of Augsburg (Germany) [presenting]
Gazi Salah Uddin - Linkoping University (Sweden)
Abstract: The purpose is to investigate the heterogeneous and asymmetrical effect of COVID-19 on the crude oil, SP500 index, EUR/USD exchange rate, and various uncertainty measures. These assets reflect the overall health of the global financial and economic system. The COVID-19 pandemic has contributed significantly to demand and supply shocks that have led to an unprecedented decline in crude oil prices. The heterogeneous and asymmetric impact of COVID-19 on these different asset classes is examined. This would enable us to understand how different asset classes react to such unique shocks. The contribution is fourfold. First, we evaluated the impact of the COVID-19 crisis on the interconnectedness of the financials, forex, and commodity markets with a specific focus on risk dynamics. Second, in contrast to the previous studies we consider high-frequency intraday data. This allows us to provide a deeper insight into the dependencies at a daily level. Third, we quantify the dependence and its dynamics using paired vine copulas. This class of copulas is highly flexible and can allow for a convenient visualization of the dependence. Forth, we put a particular focus on the crude oil returns as a function of several financial covariates using C- and D-vine regressions. This approach allows us to model the whole conditional distribution within a single day and to get insights into the causal dependence in tails or at particular quantiles.
