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Exploring the dynamic effects of financial factors on oil prices based on a TVP-VAR model

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  • Wen, Fenghua
  • Zhang, Minzhi
  • Deng, Mi
  • Zhao, Yupei
  • Ouyang, Jian

Abstract

The financialization of crude oil has been enhanced since the 2000s, which has built a stronger relationship between oil and other financial assets, and has increased volatility in the crude oil market. In order to investigate the impacts of financial factors on oil prices, we examine the combined effects of the USD, gold, stock market, and speculation in the crude oil futures market on crude oil prices based on monthly data over the period from 1997 to 2016. With the help of the TVP-VAR model, we can identify the time-varying effects of these financial factors on oil prices and can consider these four financial factors simultaneously, which is the primary contribution of this paper. The main findings of our study are as follows. First, the impacts of financial factors on crude oil prices vary over time, and 2008 global financial crisis strengthen the relationship between financial markets and crude oil prices. Second, the USD is the dominant factor affecting oil prices before a crisis but speculation becomes the strongest factor after a crisis, while gold and the S&P 500 index have lesser effects. Our findings provide the evidence for investors to diversify portfolios and manage risk as well as for policymakers to regulate the market.

Suggested Citation

  • Wen, Fenghua & Zhang, Minzhi & Deng, Mi & Zhao, Yupei & Ouyang, Jian, 2019. "Exploring the dynamic effects of financial factors on oil prices based on a TVP-VAR model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 532(C).
    • Handle: RePEc:eee:phsmap:v:532:y:2019:i:c:s0378437119310970
    DOI: 10.1016/j.physa.2019.121881
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    Citations

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    Cited by:

    1. Claudiu Albulescu, 2020. "Coronavirus and oil price crash," Papers 2003.06184, arXiv.org, revised Mar 2020.
    2. Bouri, Elie & Lei, Xiaojie & Jalkh, Naji & Xu, Yahua & Zhang, Hongwei, 2021. "Spillovers in higher moments and jumps across US stock and strategic commodity markets," Resources Policy, Elsevier, vol. 72(C).
    3. Triki, Mohamed Bilel & Ben Maatoug, Abderrazek, 2021. "The GOLD market as a safe haven against the stock market uncertainty: Evidence from geopolitical risk," Resources Policy, Elsevier, vol. 70(C).
    4. Su, Chi Wei & Song, Xin Yue & Qin, Meng & Lobonţ, Oana-Ramona, 2024. "Is copper a safe haven for oil?," Resources Policy, Elsevier, vol. 91(C).
    5. Liu, Yunqiang & Liu, Sha & Ye, Deping & Tang, Hong & Wang, Fang, 2022. "Dynamic impact of negative public sentiment on agricultural product prices during COVID-19," Journal of Retailing and Consumer Services, Elsevier, vol. 64(C).
    6. Tunc, Ahmet & Kocoglu, Mustafa & Aslan, Alper, 2022. "Time-varying characteristics of the simultaneous interactions between economic uncertainty, international oil prices and GDP: A novel approach for Germany," Resources Policy, Elsevier, vol. 77(C).
    7. Huang, Jianbai & Li, Yingli & Zhang, Hongwei & Chen, Jinyu, 2021. "The effects of uncertainty measures on commodity prices from a time-varying perspective," International Review of Economics & Finance, Elsevier, vol. 71(C), pages 100-114.
    8. Xingchen Lv & Jun Meng & Qiufeng Wu, 2022. "Dynamic Influence of Network Public Opinions on Price Fluctuation of Small Agricultural Products Based on NLP-TVP-VAR Model—Taking Garlic as an Example," Sustainability, MDPI, vol. 14(14), pages 1-21, July.
    9. Esmaeili, Parisa & Rafei, Meysam, 2021. "Dynamics analysis of factors affecting electricity consumption fluctuations based on economic conditions: Application of SVAR and TVP-VAR models," Energy, Elsevier, vol. 226(C).
    10. Tian, Meiyu & Li, Wanyang & Wen, Fenghua, 2021. "The dynamic impact of oil price shocks on the stock market and the USD/RMB exchange rate: Evidence from implied volatility indices," The North American Journal of Economics and Finance, Elsevier, vol. 55(C).
    11. Albulescu, Claudiu Tiberiu & Ajmi, Ahdi Noomen, 2021. "Oil price and US dollar exchange rate: Change detection of bi-directional causal impact," Energy Economics, Elsevier, vol. 100(C).
    12. Zhu, Xuehong & Liao, Jianhui & Chen, Ying, 2021. "Time-varying effects of oil price shocks and economic policy uncertainty on the nonferrous metals industry: From the perspective of industrial security," Energy Economics, Elsevier, vol. 97(C).
    13. Umar, Zaghum & Jareño, Francisco & Escribano, Ana, 2021. "Agricultural commodity markets and oil prices: An analysis of the dynamic return and volatility connectedness," Resources Policy, Elsevier, vol. 73(C).
    14. Huang, Qian & Wang, Xiangning & Zhang, Shuguang, 2021. "The effects of exchange rate fluctuations on the stock market and the affecting mechanisms: Evidence from BRICS countries," The North American Journal of Economics and Finance, Elsevier, vol. 56(C).
    15. Yuntong Liu & Yu Wei & Yi Liu & Wenjuan Li, 2020. "Forecasting Oil Price by Hierarchical Shrinkage in Dynamic Parameter Models," Discrete Dynamics in Nature and Society, Hindawi, vol. 2020, pages 1-12, December.
    16. Chen, Yanhui & Zhou, Xiaoyu & Chen, Shun & Mi, Jackson Jinhong, 2024. "LNG freight rate and LNG price, carbon price, geopolitical risk: A dynamic connectedness analysis," Energy, Elsevier, vol. 302(C).
    17. Gkillas, Konstantinos & Manickavasagam, Jeevananthan & Visalakshmi, S., 2022. "Effects of fundamentals, geopolitical risk and expectations factors on crude oil prices," Resources Policy, Elsevier, vol. 78(C).
    18. Donia Aloui & Stéphane Goutte & Khaled Guesmi & Rafla Hchaichi, 2020. "COVID 19's impact on crude oil and natural gas S&P GS Indexes," Working Papers halshs-02613280, HAL.
    19. Yanhong Feng & Xiaolei Wang & Shuanglian Chen & Yanqiong Liu, 2022. "Impact of Oil Financialization on Oil Price Fluctuation: A Perspective of Heterogeneity," Energies, MDPI, vol. 15(12), pages 1-20, June.
    20. Zhou, Mei-Jing & Huang, Jian-Bai & Chen, Jin-Yu, 2020. "The effects of geopolitical risks on the stock dynamics of China's rare metals: A TVP-VAR analysis," Resources Policy, Elsevier, vol. 68(C).
    21. Lin, Boqiang & Su, Tong, 2021. "Do China's macro-financial factors determine the Shanghai crude oil futures market?," International Review of Financial Analysis, Elsevier, vol. 78(C).
    22. Huang, Jianbai & Dong, Xuesong & Chen, Jinyu & Zhong, Meirui, 2022. "Do oil prices and economic policy uncertainty matter for precious metal returns? New insights from a TVP-VAR framework," International Review of Economics & Finance, Elsevier, vol. 78(C), pages 433-445.
    23. Malgorzata Porada - Rochon, 2020. "The Length of Financial Cycle and its Impact on Business Cycle in Poland," European Research Studies Journal, European Research Studies Journal, vol. 0(4), pages 1278-1290.
    24. Alomari, Mohammad & Mensi, Walid & Vo, Xuan Vinh & Kang, Sang Hoon, 2022. "Extreme return spillovers and connectedness between crude oil and precious metals futures markets: Implications for portfolio management," Resources Policy, Elsevier, vol. 79(C).

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