Uncertainty and Crude Oil Returns

20 Pages Posted: 28 Jun 2015 Last revised: 23 Jul 2016

See all articles by Riadh Aloui

Riadh Aloui

University of Sousse

Rangan Gupta

University of Pretoria - Department of Economics

Stephen M. Miller

University of Nevada, Las Vegas - Department of Economics; University of Connecticut - Department of Economics

Date Written: June 26, 2015

Abstract

We use a copula approach to investigate the effect of uncertainty on crude-oil returns. Using copulas to construct multivariate distributions of time-series data permit the calculation of the dependence structure between the series independently of the marginal distributions. Further, we implement the copula estimation using a rolling window method to allow for a time-varying effect of equity and economic policy uncertainty on oil returns. The results show that higher uncertainty, as measured by equity and economic policy uncertainty indices, significantly increase crude-oil returns only during certain periods of time. That is, we find a positive dependence prior to and into the financial crisis and Great Recession, Interestingly, estimation of the copula over the entire sample period leads to a negative dependence between the equity and economic policy indices and the crude-oil return.

Keywords: Uncertainty, oil shocks, copulas

JEL Classification: Q43, Q48

Suggested Citation

Aloui, Riadh and Gupta, Rangan and Miller, Stephen M., Uncertainty and Crude Oil Returns (June 26, 2015). Energy Economics, Vol. 55, 2016. Available at SSRN: https://ssrn.com/abstract=2623745 or http://dx.doi.org/10.2139/ssrn.2623745

Riadh Aloui

University of Sousse ( email )

rue Abdelaziz el Behi
Sousse, Sousse 4000
Tunisia

Rangan Gupta

University of Pretoria - Department of Economics ( email )

Lynnwood Road
Hillcrest
Pretoria, 0002
South Africa

Stephen M. Miller (Contact Author)

University of Nevada, Las Vegas - Department of Economics ( email )

4505 S. Maryland Parkway
Box 456005
Las Vegas, NV 89154
United States
702-895-3776 (Phone)
702-895-1354 (Fax)

HOME PAGE: http://faculty.unlv.edu/smiller/

University of Connecticut - Department of Economics

365 Fairfield Way, U-1063
Storrs, CT 06269-1063
United States

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