Time-Varying Linkage between Equities and Oil

2020-05-01
Ordu Akkaya, Beyza Mina
Oran, Adil
Soytaş, Uğur
This study examines the correlation structures between oil futures, the S&P500 and US sectoral indices, using the Asymmetric DCC method. The results indicate that these correlations display time-varying and asymmetric characteristics. The potential effects of various factors, including copper and gold prices, dollar/euro exchange rate, T-bill rate and financial stress index on these dynamic correlations are also investigated. The dynamic links between oil and stock returns weaken in response to shocks in all factors we examine, except for financial stress index and short-term interest rates. Similar to previous studies, we find that during financial distress episodes, correlations tend to strengthen. Furthermore, we are interested in whether the increases in correlations are temporary or persistent in nature, as this would contain important information for hedging strategies. The findings indicate that prior to the 2008 global financial crisis, the increases were more temporary in nature, whereas after this crisis they display more persistent behavior. We find that the Cleveland Financial Stress Index (CFSI) captures a long-term increase in correlations, since an increase in the CFSI post-2008 leads to a surge in correlations, but not in pre-2008. Hence, investors should definitely follow CFSI to gain benefits of diversification in commodity markets.

Suggestions

Time-Varying Linkage between Equities and Oil
Ordu Akkaya, Beyza Mina; Oran, Adil; Soytaş, Uğur (World Scientific Publishing, 2020-01-01)
This study examines the correlation structures between oil futures, the S&P 500 and US sectoral indices, using the Asymmetric DCC method. The results indicate that these correlations display time-varying and asymmetric characteristics. The potential effects of variousfactors, including copper and gold prices, dollar/euro exchange rate, T-bill rate and financial stress index on these dynamic correlations are also investigated. The dynamic links betweenoil and stock returns weaken in response to shocks in all...
Short-term trend prediction in financial time series data
Ozorhan, Mustafa Onur; Toroslu, İsmail Hakkı; Şehitoğlu, Onur Tolga (Springer Science and Business Media LLC, 2019-10-01)
This paper presents a method to predict short-term trends in financial time series data found in the foreign exchange market. Trends in the Forex market appear with similar chart patterns. We approach the chart patterns in the financial markets from a discovery of motifs in a time series perspective. Our method uses a modified Zigzag technical indicator to segment the data and discover motifs, expectation maximization to cluster the motifs and support vector machines to classify the motifs and predict accur...
Yield curve estimation and prediction with Vasicek Model
Bayazıt, Derviş; Hayvafi, Azize; Department of Financial Mathematics (2004)
The scope of this study is to estimate the zero-coupon yield curve of tomorrow by using Vasicek yield curve model with the zero-coupon bond yield data of today. The raw data of this study is the yearly simple spot rates of the Turkish zero-coupon bonds with different maturities of each day from July 1, 1999 to March 17, 2004. We completed the missing data by using Nelson-Siegel yield curve model and we estimated tomorrow yield cuve with the discretized Vasicek yield curve model.
Real Exchange Rates and Growth: Contractionary Depreciations or Appreciations?
Özmen, Erdal; YOLCU KARADAM, DUYGU (2021-01-01)
This study investigates the impact of real exchange rates (RER) on growth of a large number of advanced (AE) and developing economies (DE) estimating conventional growth models augmented with global financial conditions variables. First of all, replicating Rodrik (2008) and following studies employing panel autoregressive distributed lag (PARDL) and PARDL mean group (PARDL-MG) models, we show that the expansionary depreciation findings for DE are often based on a misinterpretation of an error correction mec...
Application of nonlinear unit root tests and threshold autoregressive models
Uysal, Ela; Yıldırım Kasap, Dilem; Department of Economics (2012)
Popularity of nonlinear threshold models and unit root tests has increased after the recent empirical studies concerning the effects of business cycles on macroeconomic data. These studies have shown that an economic variable may react differently in response to downturns and recoveries in a business cycle. Inspiring from empirical results, this thesis investigates dynamics of Turkish key macroeconomic data, namely capacity utilization rate, growth of import and export volume indices, growth of gross domest...
Citation Formats
B. M. Ordu Akkaya, A. Oran, and U. Soytaş, Time-Varying Linkage between Equities and Oil. 2020.