TY - JOUR
T1 - Forecasting the dynamic relationship between crude oil and stock prices since the 19th century
AU - Ivanovski, Kris
AU - Hailemariam, Abebe
PY - 2021/12
Y1 - 2021/12
N2 - In this paper, we model and forecast the volatility and correlation between oil prices and stock returns. Employing a recently innovated generalized autoregressive score (GAS) model based on the score function and using long historical data spanning from 1871 to 2020, we find a time-varying relationship between oil prices and stock returns. Specifically, the dynamic correlations between crude oil and stock returns tend to rise during turbulent events over the sample period significantly. Our results show that the GAS(1,1) model outperforms the DCC-GARCH model. Our results on the dependent patterns between oil price and stock returns provide useful information for investors, portfolio managers and market participants.
AB - In this paper, we model and forecast the volatility and correlation between oil prices and stock returns. Employing a recently innovated generalized autoregressive score (GAS) model based on the score function and using long historical data spanning from 1871 to 2020, we find a time-varying relationship between oil prices and stock returns. Specifically, the dynamic correlations between crude oil and stock returns tend to rise during turbulent events over the sample period significantly. Our results show that the GAS(1,1) model outperforms the DCC-GARCH model. Our results on the dependent patterns between oil price and stock returns provide useful information for investors, portfolio managers and market participants.
KW - DCC-GARCH model
KW - Forecasting
KW - Multivariate GAS model
KW - Oil price
KW - Stock price
KW - Volatility and correlation
UR - http://www.scopus.com/inward/record.url?scp=85099555177&partnerID=8YFLogxK
U2 - 10.1016/j.jcomm.2021.100169
DO - 10.1016/j.jcomm.2021.100169
M3 - Review Article
AN - SCOPUS:85099555177
VL - 24
JO - Journal of Commodity Markets
JF - Journal of Commodity Markets
SN - 2405-8513
M1 - 100169
ER -