Relationship between oil price and exchange rate by FDA and copula

Jong Min Kim, Hojin Jung

    Research output: Contribution to journalArticlepeer-review

    5 Scopus citations

    Abstract

    This article investigates the relationship between daily crude oil prices and exchange rates. Functional data analysis is used to show the clustering pattern of exchange rates and oil prices over the time period through high dimensional visualizations. We select exchange rates for important currencies related to crude oil prices by using the objective Bayesian variable selection method. The selected sample data exhibits non-normal distribution with fat tails and skewness. Under the non-normality of the return series, we use copula functions that do not require to assume the bivariate normality to consider marginal distribution. In particular, our study applies the popular and powerful statistical methods such as Gaussian copula partial correlations and Gaussian copula marginal regression. We find evidence of significant dependence for all considered pairs, except for the Mexican peso-Brent. Our empirical results also show that the rise in the West Texas Intermediate (WTI) oil price returns is associated with a depreciation of the US dollar.

    Original languageEnglish (US)
    Pages (from-to)2486-2499
    Number of pages14
    JournalApplied Economics
    Volume50
    Issue number22
    DOIs
    StatePublished - May 9 2018

    Keywords

    • Bayesian variable selection
    • Relationship
    • copula
    • functional data analysis

    Fingerprint Dive into the research topics of 'Relationship between oil price and exchange rate by FDA and copula'. Together they form a unique fingerprint.

    Cite this