Abstract

http://ssrn.com/abstract=2021199
 


 



On the Macroeconomic Determinants of Long-Term Volatilities and Correlations in U.S. Stock and Crude Oil Markets


Christian Conrad


University of Heidelberg - Faculty of Economics and Social Studies

Karin Loch


University of Heidelberg - Faculty of Economics and Social Studies

Daniel Rittler


University of Heidelberg - Alfred Weber Institute for Economics

March 17, 2014

Journal of Empirical Finance, Forthcoming

Abstract:     
Using a modified DCC-MIDAS specification, we endogenize the long-term correlation between crude oil and stock price returns with respect to the stance of the U.S. macroeconomy. We find that variables that contain information on current and future economic activity are helpful predictors of changes in the oil-stock correlation. For the period 1993-2011 there is strong evidence for counter cyclical behavior of the long-term correlation. For prolonged periods with strong growth above trend our model predicts a negative long-term correlation, while before and during recessions the sign changes and remains positive throughout the economic recovery.

Number of Pages in PDF File: 34

Keywords: Oil-stock relationship, long-term volatility, long-term correlation, GARCH-MIDAS, DCC-MIDAS

JEL Classification: C32, C58, Q43

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Date posted: March 14, 2012 ; Last revised: May 1, 2014

Suggested Citation

Conrad, Christian and Loch, Karin and Rittler, Daniel, On the Macroeconomic Determinants of Long-Term Volatilities and Correlations in U.S. Stock and Crude Oil Markets (March 17, 2014). Journal of Empirical Finance, Forthcoming. Available at SSRN: http://ssrn.com/abstract=2021199 or http://dx.doi.org/10.2139/ssrn.2021199

Contact Information

Christian Conrad (Contact Author)
University of Heidelberg - Faculty of Economics and Social Studies ( email )
Bergheimer Strasse 58
Heidelberg, D-69115
Germany
+49 (0)6221 54 3173 (Phone)
HOME PAGE: http://www.uni-heidelberg.de/fakultaeten/wiso/awi/professuren/empwirtfor/christianconrad.html
Karin Loch
University of Heidelberg - Faculty of Economics and Social Studies ( email )
Bergheimer Str. 58
Heidelberg, D-69115
Germany
Daniel Rittler
University of Heidelberg - Alfred Weber Institute for Economics ( email )
Bergheimer Straße 58
Heidelberg, D-69115
Germany
+49 6221 54 2908 (Phone)
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