Time-Frequency Analysis of Crude Oil and S&P500 Futures Contracts

Quantitative Finance, Vol.12, No. 12, 2012

Posted: 12 Apr 2014

See all articles by Joseph McCarthy

Joseph McCarthy

Bryant University

Alexei G. Orlov

Securities and Exchange Commission

Date Written: 2012

Abstract

We use frequency-domain techniques, namely wavelets and cross-spectra, to examine the association between the daily prices of crude oil futures and daily S&P500 futures closing prices over the past several decades. We investigate contemporaneous and lag-lead relationships in levels and returns. It is our belief that the wavelet and cross-spectral analyses employed in this paper offer insights regarding the relationship between oil prices and stock returns that are not apparent from a conventional time-domain framework. Our findings cast doubt on the purported negative relationship between oil and the U.S. stock market. Our analysis suggests that oil prices lead oil volume, and S&P500 trading volume leads S&P500 prices.

Keywords: Wavelets in finance, Comovements, Financial futures, Commodity prices, Cross-spectrum in finance

JEL Classification: C1, C14, G1, G10, G13

Suggested Citation

McCarthy, Joseph and Orlov, Alexei G., Time-Frequency Analysis of Crude Oil and S&P500 Futures Contracts (2012). Quantitative Finance, Vol.12, No. 12, 2012. Available at SSRN: https://ssrn.com/abstract=2423582

Joseph McCarthy

Bryant University ( email )

1150 Douglas Pike
Smithfield, RI 02917-1284
United States
401-232-6446 (Phone)

Alexei G. Orlov (Contact Author)

Securities and Exchange Commission ( email )

100 F Street NE
Washington, DC 20549
United States

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