Modelling dependency structures of crude oil prices and stock markets of developed and developing countries: A C-vine copula approach

Abstract

This paper aims to investigate the impact of oil price on the stock price of developed countries (represented by the Group of seven) and the stock price of developing countries (represented by BRICS) by using C-vine copula approach. A C-vine based GJR-GARCH is used to measure the conditional dependence between stock price and oil price and investigate the difference between developed countries and developing countries. The empirical evidence shows that G7 and BRICS countries have a positive and significant dependence between oil returns, and there is an even stronger dependence between oil returns for the G7 countries. Some countries in the developed and the developing countries have the tail relationship in the low market or in bear market, further, both groups do not have a relationship with oil return when the stock is in a boom market.