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Bidirectional Risk Spillovers between Exchange Rate of Emerging Market Countries and International Crude Oil Price–Based on Time-varing Copula-CoVaR

Author

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  • Liang Wang

    (Xi’an University of Technology)

  • Tingjia Xu

    (Xi’an University of Technology)

Abstract

This paper discusses the bidirectional risk spillover effect between the exchange rate of emerging market countries and International crude oil price. Firstly, the IFM two-step method is adopted to determine the marginal distribution and the joint copula distribution, and the optimal time-varying Copula-CoVaR model is constructed accordingly to measure the risk spillovers between the exchange rate and crude oil price. Secondly, the absolute risk spillover and relative risk spillover measures are proposed for the empirical research. Thirdly, the asymmetry of bidirectional risk spillovers is discussed. The research findings are as follows. (i) The 180-degree Rotated BB8 Copula and the relative risk spillover measurement method can well analyze the specific characteristics of bidirectional risk spillovers. (ii) There are bidirectional risk spillovers between crude oil price and the exchange rate of emerging market countries, the exchange rate of different countries shows a strong consistency in the change of unidirectional risk spillover intensity on crude oil price. (iii) There is an asymmetry of bidirectional risk spillovers between the crude oil price and exchange rate, and the risk spillover intensity of the former to the latter is higher than that of the latter to the former. (iv) In extreme cases such as the financial crisis, the bidirectional risk spillovers between the exchange rate and the international crude oil price are greatly reduced, and the unidirectional risk spillover intensity of the latter to the former is significantly weakened compared with that of the former to the latter.

Suggested Citation

  • Liang Wang & Tingjia Xu, 2022. "Bidirectional Risk Spillovers between Exchange Rate of Emerging Market Countries and International Crude Oil Price–Based on Time-varing Copula-CoVaR," Computational Economics, Springer;Society for Computational Economics, vol. 59(1), pages 383-414, January.
    • Handle: RePEc:kap:compec:v:59:y:2022:i:1:d:10.1007_s10614-021-10160-3
    DOI: 10.1007/s10614-021-10160-3
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    2. Mouna Ben Saad Zorgati, 2023. "Risk Measure between Exchange Rate and Oil Price during Crises: Evidence from Oil-Importing and Oil-Exporting Countries," JRFM, MDPI, vol. 16(4), pages 1-21, April.
    3. Lu, Xunfa & He, Pengchao & Zhang, Zhengjun & Apergis, Nicholas & Roubaud, David, 2024. "Extreme co-movements between decomposed oil price shocks and sustainable investments," Energy Economics, Elsevier, vol. 134(C).
    4. Wu, Tao & Sun, Xiaotong & Xu, Xin & Jia, Nanfei & Xuan, Siyuan, 2024. "New evidence of interdependence in forex markets: A connection of connection analysis," International Review of Financial Analysis, Elsevier, vol. 95(PA).
    5. Wang, Xiangning & Huang, Qian & Zhang, Shuguang, 2023. "Effects of macroeconomic factors on stock prices for BRICS using the variational mode decomposition and quantile method," The North American Journal of Economics and Finance, Elsevier, vol. 67(C).

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