Oil Price Density Forecasts: Exploring the Linkages with Stock Markets
31 Pages Posted: 25 May 2013
Date Written: December 5, 2012
Abstract
In the recent years several commentators hinted at an increase of the correlation between equity and commodity prices, and blamed investment in commodity-related products for this. First, this paper investigates such claims by looking at various measures of correlation. Next, we assess to what extent correlations between oil and equity prices can be exploited for asset allocation. We develop a time-varying Bayesian Dynamic Conditional Correlation model for volatilities and correlations and find that joint modelling of oil and equity prices produces more accurate point and density forecasts for oil which lead to substantial benefits in portfolio wealth.
Keywords: Oil price, stock price, density forecasting, correlation, Bayesian DCC
JEL Classification: C11, C15, C53, E17, G17
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Imperfect Competition and the Effects of Energy Price Increases on Economic Activity
-
Not All Oil Price Shocks are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market
By Lutz Kilian
-
Do We Really Know that Oil Caused the Great Stagflation? A Monetary Alternative
By Robert Barsky and Lutz Kilian
-
Oil and the Macroeconomy Since the 1970s
By Robert Barsky and Lutz Kilian
-
Oil and the Macroeconomy Since the 1970s
By Robert Barsky and Lutz Kilian
-
The Macroeconomic Effects of Oil Price Shocks: Why are the 2000s so Different from the 1970s?
By Olivier J. Blanchard and Jordi Galí
-
The Macroeconomic Effects of Oil Shocks: Why are the 2000s so Different from the 1970s?
By Olivier J. Blanchard and Jordi Galí
-
The Macroeconomic Effects of Oil Shocks: Why are the 2000s so Different from the 1970s?
By Olivier J. Blanchard and Jordi Galí
-
Exogenous Oil Supply Shocks: How Big are They and How Much Do They Matter for the Us Economy?
By Lutz Kilian