Title: Conditional dependence between oil and exchange rate returns in a developing oil-exporting economy: an investigation with copula-based TGARCH models
Authors: Arturo Lorenzo-Valdés; Antonio Ruíz-Porras
Addresses: Business Deanery, Universidad Popular Autónoma del Estado de Puebla (UPAEP), 17 Sur # 901, Barrio de Santiago, 72410, Puebla, Mexico ' Department of Quantitative Methods, Universidad de Guadalajara-CUCEA, Periférico Norte # 799, Núcleo Universitario Los Belenes, 45100, Zapopan, Jalisco, Mexico
Abstract: We study the interdependence, the conditional tail dependences and the volatilities of the oil and the exchange-rate returns for the Mexican economy. We develop the analysis with four copula-based TGARCH models. The main findings show that: (1) the Clayton-TGARCH distribution seems to characterise the co-movements between the series; (2) leverage effects of the exchange rate returns are bigger than the ones of the oil returns; (3) the series show lower tail dependence; and (4) extreme downfalls in oil returns may reduce exchange-rate ones with a probability of less than 10%. The study relies on series of weekly returns for the period between 2 January 1998 and 30 September 2016.
Keywords: copulas; TGARCH models; conditional dependence; oil returns; exchange-rate returns; Mexican economy.
International Journal of Global Energy Issues, 2019 Vol.42 No.1/2, pp.21 - 44
Accepted: 09 Apr 2019
Published online: 05 Jul 2019 *