Analysis of dependence structure among investor sentiment, policy uncertainty and international oil prices

Abstract

The behavioural aspect of finance and economics has an embedded importance in the literature. This paper provides an evidence of the interrelationship of international oil prices with economic policy uncertainty, consumer sentiments and US investor sentiment proxies. To test the underlying dependence structure, we employ time invariant and time-varying copula methods due to dynamic return patterns of our sampled indices. Our analysis reveals an underlying relationship of investor sentiments and economic policy uncertainty with international oil prices not only during normal periods but also in the periods of financial turmoil. Results of our nonlinear causality highlight potential of bidirectional spillover between oil prices and investor sentiment indices across all quantiles. This helps in understanding that a volatile international oil market may have significant impact on investor sentiments and economic policy uncertainty and vice versa. [Received: December 20, 2019; Accepted: June 17, 2020]