Dynamic dependence between ETFs and crude oil prices by using EGARCH-Copula approach

By Muhammad Naeem, Zaghum Umar, Sheraz Ahmed, El Mehdi Ferrouhi. 2020

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Abstract In this study, we examine the average and extreme dependence between Exchange Traded Funds ETFs (both energy & commodity) and WTI crude oil prices by using EGARCH-copula models. We use both static (Normal, Student-t, Gumbel and Clayton) and time-varying (Normal and SJC) copulas to explore both average and extreme dependence. Based on the Akaike information criterion (AIC), our results show that time-varying copulas outperform the static copulas. Further, we have found strong enough positive correlations of energy and commodity ETFs with oil prices to suggest that they could be used as a tool for managing oil price risk. Also, contrasting results of time-varying copulas with each other provide useful information regarding the hedge or safe-haven properties of energy and commodity ETFs.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/4b94aafcd1b4bb0ff4899d4ccd74ae87f8d1d76f