Scandinavian Working Papers in Economics

Working Papers,
Örebro University, School of Business

No 2022:5: Modeling stock-oil co-dependence with Dynamic Stochastic MIDAS Copula models

Hoang Nguyen () and Audrone Virbickaite ()
Additional contact information
Hoang Nguyen: Örebro University School of Business, Postal: Örebro University, School of Business, SE - 701 82 ÖREBRO, Sweden
Audrone Virbickaite: CUNEF Universidad, Postal: Department of Quantitative Methods, CUNEF Universidad, Madrid, Spain

Abstract: Stock and oil relationship is usually time-varying and depends on the current economic conditions. In this study, we propose a new Dynamic Stochastic Mixed data frequency sampling (DSM) copula model, that decomposes the stock-oil relationship into a short-run dynamic stochastic component and a long-run component, governed by related macro- nance variables. We nd that in ation/interest rate, uncertainty and liquidity factors are the main drivers of the long-run co-dependence. We show that investment portfolios, based on the proposed DSM copula model, are more accurate and produce better economic outcomes as compared to other alternatives.

Keywords: Stock-Oil; Copula; MIDAS; SMC; Portfolio allocation; Hedging

JEL-codes: C32; C52; C58; G11; G12

Language: English

52 pages, May 19, 2022

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