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Multi-Horizon Dependence between Crude Oil and East Asian Stock Markets and Implications in Risk Management

Author

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  • Xiaojing Cai

    (Graduate School of Humanities and Social Sciences, Okayama University, 3-1-1, Tsushima-naka, Kita-ku, Okayama 700-8530, Japan)

  • Shigeyuki Hamori

    (Graduate School of Economics, Kobe University, 2-1, Rokkodai, Nada-Ku, Kobe 657-8501, Japan)

  • Lu Yang

    (School of Finance, Zhongnan University of Economics and Law, 182 Nanhu Avenue, East Lake High-tech Development Zone, Wuhan 430-073, China)

  • Shuairu Tian

    (Research Center of Finance, Shanghai Business School, 2271 West Zhongshan Road, Shanghai 200235, China)

Abstract

This paper examines the dynamic dependence structure of crude oil and East Asian stock markets at multiple frequencies using wavelet and copulas. We also investigate risk management implications and diversification benefits of oil-stock portfolios by calculating and comparing risk and tail risk hedging performance. Our results provide strong evidence of time-varying dependence and asymmetric tail dependence between crude oil and East Asian stock markets at different frequencies. The level and fluctuation of their dependencies increase as time scale increases. Furthermore, we find the time-varying hedging benefits differ at investment horizons and reduced over the long run. Our results suggest that crude oil could be used as a hedge and safe haven against East Asian stock markets, especially in the short- and mid-term.

Suggested Citation

  • Xiaojing Cai & Shigeyuki Hamori & Lu Yang & Shuairu Tian, 2020. "Multi-Horizon Dependence between Crude Oil and East Asian Stock Markets and Implications in Risk Management," Energies, MDPI, vol. 13(2), pages 1-24, January.
    • Handle: RePEc:gam:jeners:v:13:y:2020:i:2:p:294-:d:306122
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    References listed on IDEAS

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    4. Ngo Thai HUNG, 2020. "Conditional dependence between oil prices and CEE stock markets: a copula-GARCH approach Abstract: This study investigates both the constant and time-varying conditional dependency between crude oil a," Eastern Journal of European Studies, Centre for European Studies, Alexandru Ioan Cuza University, vol. 11, pages 62-86, June.
    5. Ngo Thai Hung & Xuan Vinh Vo, 2023. "Multi-scale Features of Interdependence Between Oil Prices and Stock Prices," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 30(3), pages 475-504, September.
    6. Zhu, Huiming & Yu, Dongwei & Hau, Liya & Wu, Hao & Ye, Fangyu, 2022. "Time-frequency effect of crude oil and exchange rates on stock markets in BRICS countries: Evidence from wavelet quantile regression analysis," The North American Journal of Economics and Finance, Elsevier, vol. 61(C).
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