The dependence and risk spillover between economic uncertainties and the crude oil market: new evidence from a Copula-CoVaR approach incorporating the decomposition technique.

Abstract

Understanding the risk spillover of the oil market in economic uncertainty is of great importance. However, it is difficult to take on a traditional single perspective in describing the risk spillover law of economic uncertainty in the crude oil market on different timescales. In order to fill the research gap resulting from such difficulty, this paper incorporates empirical mode decomposition into the time-varying Copula-CoVaR model, and for the first time explores the risk spillover path of economic uncertainty on the two international crude oil pricing benchmarks-Brent and West Texas Intermediate crude oil prices-using different timescales. The empirical results not only verify the necessity of research from the perspective of different timescales, but also reveal the heterogeneity of the risk spillover paths of different types of economic uncertainty on crude oil prices. The research in this paper provides a multi-perspective interpretation for understanding the complex risk spillovers between various economic uncertainties and the crude oil market, as well as providing meaningful information to support stakeholders in making rational decisions.