Time-varying risk aversion and dynamic dependence between crude oil futures and European Union allowance futures markets
In this paper, we propose the copula-mixed frequency data sampling model incorporating time-varying risk aversion (RA) (copula-MIDAS-RA model) to investigate the impact of time-varying RA on the dynamic dependence between crude oil futures and European Union allowance (EUA) futures markets. An empir...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
Frontiers Media S.A.
2023-05-01
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| Series: | Frontiers in Environmental Science |
| Subjects: | |
| Online Access: | https://www.frontiersin.org/articles/10.3389/fenvs.2023.1152761/full |
| _version_ | 1797831048795521024 |
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| author | Xinyu Wu Zhitian Zhu |
| author_facet | Xinyu Wu Zhitian Zhu |
| author_sort | Xinyu Wu |
| collection | DOAJ |
| description | In this paper, we propose the copula-mixed frequency data sampling model incorporating time-varying risk aversion (RA) (copula-MIDAS-RA model) to investigate the impact of time-varying RA on the dynamic dependence between crude oil futures and European Union allowance (EUA) futures markets. An empirical analysis based on the daily data on the Brent crude oil futures and EUA futures returns and the monthly data on the RA index shows that the Student-t copula-MIDAS-RA model has better goodness-of-fit than other copulas, suggesting that the tail dependence between crude oil futures and EUA futures markets is symmetric and time-varying. More importantly, we observe that the RA has a significantly positive impact on the dynamic dependence between crude oil futures and EUA futures markets. That is, the dynamic dependence between crude oil futures and EUA futures markets is expected to increase with the level of RA increases. Moreover, we observe that the Student-t copula-MIDAS-RA model improves the accuracy in risk management relative to other copula models. Our findings have implication for hedging strategies and asset pricing. |
| first_indexed | 2024-04-09T13:45:48Z |
| format | Article |
| id | doaj.art-420b97db96c34c3d957ae6434850ce86 |
| institution | Directory Open Access Journal |
| issn | 2296-665X |
| language | English |
| last_indexed | 2024-04-09T13:45:48Z |
| publishDate | 2023-05-01 |
| publisher | Frontiers Media S.A. |
| record_format | Article |
| series | Frontiers in Environmental Science |
| spelling | doaj.art-420b97db96c34c3d957ae6434850ce862023-05-09T04:24:14ZengFrontiers Media S.A.Frontiers in Environmental Science2296-665X2023-05-011110.3389/fenvs.2023.11527611152761Time-varying risk aversion and dynamic dependence between crude oil futures and European Union allowance futures marketsXinyu WuZhitian ZhuIn this paper, we propose the copula-mixed frequency data sampling model incorporating time-varying risk aversion (RA) (copula-MIDAS-RA model) to investigate the impact of time-varying RA on the dynamic dependence between crude oil futures and European Union allowance (EUA) futures markets. An empirical analysis based on the daily data on the Brent crude oil futures and EUA futures returns and the monthly data on the RA index shows that the Student-t copula-MIDAS-RA model has better goodness-of-fit than other copulas, suggesting that the tail dependence between crude oil futures and EUA futures markets is symmetric and time-varying. More importantly, we observe that the RA has a significantly positive impact on the dynamic dependence between crude oil futures and EUA futures markets. That is, the dynamic dependence between crude oil futures and EUA futures markets is expected to increase with the level of RA increases. Moreover, we observe that the Student-t copula-MIDAS-RA model improves the accuracy in risk management relative to other copula models. Our findings have implication for hedging strategies and asset pricing.https://www.frontiersin.org/articles/10.3389/fenvs.2023.1152761/fullcrude oil futuresEuropean Union allowance futuresdependencetime-varying risk aversioncopula-MIDAS |
| spellingShingle | Xinyu Wu Zhitian Zhu Time-varying risk aversion and dynamic dependence between crude oil futures and European Union allowance futures markets Frontiers in Environmental Science crude oil futures European Union allowance futures dependence time-varying risk aversion copula-MIDAS |
| title | Time-varying risk aversion and dynamic dependence between crude oil futures and European Union allowance futures markets |
| title_full | Time-varying risk aversion and dynamic dependence between crude oil futures and European Union allowance futures markets |
| title_fullStr | Time-varying risk aversion and dynamic dependence between crude oil futures and European Union allowance futures markets |
| title_full_unstemmed | Time-varying risk aversion and dynamic dependence between crude oil futures and European Union allowance futures markets |
| title_short | Time-varying risk aversion and dynamic dependence between crude oil futures and European Union allowance futures markets |
| title_sort | time varying risk aversion and dynamic dependence between crude oil futures and european union allowance futures markets |
| topic | crude oil futures European Union allowance futures dependence time-varying risk aversion copula-MIDAS |
| url | https://www.frontiersin.org/articles/10.3389/fenvs.2023.1152761/full |
| work_keys_str_mv | AT xinyuwu timevaryingriskaversionanddynamicdependencebetweencrudeoilfuturesandeuropeanunionallowancefuturesmarkets AT zhitianzhu timevaryingriskaversionanddynamicdependencebetweencrudeoilfuturesandeuropeanunionallowancefuturesmarkets |