Linkage transitions between oil and the stock markets of countries with the highest COVID-19 cases

Abstract

This paper employed dynamic copulas and Extreme Value Theory (EVT) to analyze the linkages between oil and the stock market of countries with the highest number of COVID-19 cases. Many papers have reported small but significant negative dependence between oil and the markets before the pandemic. This work enhances the understanding of these links by exploring the tail behavior. There are many extreme returns during these periods. Integration between copula with EVT does help to understand these extreme returns better. The linkages for an overall dependence structure began to decrease dramatically and volatile after the pandemic outbreak. Lower dependence for most pairs seems to be stronger most of the time during COVID-19. The research results have possible effects on portfolio and risk management and provide insights that could be used to assess the long- and short-term effects of the pandemic.