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The dependence structure across oil, wheat, and corn: A wavelet-based copula approach using implied volatility indexes

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  • Mensi, Walid
  • Tiwari, Aviral
  • Bouri, Elie
  • Roubaud, David
  • Al-Yahyaee, Khamis H.

Abstract

This paper examines the dependence structure between three commodities implied volatility indexes (oil, wheat and corn) during bear, normal and bull markets and at different scales. For this purpose, we combine wavelet and copula methods to analyse the changes of the tail dependence at different scales or investment horizons. The results support evidence of time-varying asymmetric tail dependence between the pair of cereals as well as between oil and the two cereals at different time horizons – short-term horizon, medium term horizon and long term horizon, suggesting that the dependence structure is sensitive to time horizons. These results have important implications for the analysis of portfolio risk management.

Suggested Citation

  • Mensi, Walid & Tiwari, Aviral & Bouri, Elie & Roubaud, David & Al-Yahyaee, Khamis H., 2017. "The dependence structure across oil, wheat, and corn: A wavelet-based copula approach using implied volatility indexes," Energy Economics, Elsevier, vol. 66(C), pages 122-139.
    • Handle: RePEc:eee:eneeco:v:66:y:2017:i:c:p:122-139
    DOI: 10.1016/j.eneco.2017.06.007
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    More about this item

    Keywords

    Commodity implied volatility; Dependence; Scale; Copula; Wavelet;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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