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Exploring the dynamic relationship between crude oil price and implied volatility indices: A MF-DCCA approach

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  • Cai, Yuxin
  • Lu, Xinsheng
  • Ren, Yongping
  • Qu, Ling

Abstract

This paper investigates the cross-correlation between crude oil prices and implied volatility indices — theinvestor’s fear gauges, using a cross-correlation statistical test and multifractal detrended cross-correlation analysis (MF-DCCA). The results show that the cross-correlations between crude oil prices and three different implied volatility indices are multifractal. By finding the “crossover”, we separate the three pairs of series into the short- and long-term, respectively, and find that the cross-correlations are strongly anti-persistent in both short- and long-term. Moreover, cross-correlations of small and large fluctuations are anti-persistent in the short- and long-term, suggesting that crude oil prices and implied volatility indices are susceptible to each other. We also find that the cross-correlation exponents are less than the average generalized Hurst exponent when q<0 and more than the average generalized Hurst exponent when q>0 in the short-term and that the opposite results are true in the long-term.

Suggested Citation

  • Cai, Yuxin & Lu, Xinsheng & Ren, Yongping & Qu, Ling, 2019. "Exploring the dynamic relationship between crude oil price and implied volatility indices: A MF-DCCA approach," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 536(C).
    • Handle: RePEc:eee:phsmap:v:536:y:2019:i:c:s0378437119305771
    DOI: 10.1016/j.physa.2019.04.209
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