Asymmetric Dependence Analysis of International Crude Oil Spot and Futures Based on the Time Varying Copula-GARCH

Abstract

Taking daily return of international crude oil spot and futures as sample, this paper analyzed the time varying and asymmetric dependence structure of them by time varying Copula-GARCH model based on sliding window and semi parameter estimation. This paper analyzed the regular changing between dependence structure of crude oil spot and futures and the return fluctuation, and confirmed that there is significant time varying asymmetric tail dependence. This paper found that the size of the sliding window had no significant influence on the conclusion, and the data of weekly return is more suitable for analysis of the trend of dependence structure of spot.

Correlation asymmetry and implication on hedging

“…He finds evidence of asymmetric dependence being slightly weaker in the upper tail than in the lower one. In the same context, Xin and Jun (2015) also use a time varying copula GARCH to crude oil spot and futures and show significant time varying asymmetric tail dependence between the data. Chai (2015) analyses the dependence structure and OHR of US spot and futures markets during financial crisis using a Gumbel copula-threshold-GARCH model modelling asymmetry in univariate spot and futures returns as well as in bivariate dependency.…”