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arXiv · 1812.08548

Multifractal cross-correlations between the World Oil and other Financial Markets in 2012-2017

Marcin Wątorek·Stanisław Drożdż·Paweł Oświȩcimka·Marek Stanuszek
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Abstract

Statistical and multiscaling characteristics of WTI Crude Oil prices expressed in US dollar in relation to the most traded currencies as well as to gold futures and to the E-mini S$\&$P500 futures prices on 5 min intra-day recordings in the period January 2012 - December 2017 are studied. It is shown that in most of the cases the tails of return distributions of the considered financial instruments follow the inverse cubic power law. The only exception is the Russian ruble for which the distribution tail is heavier and scales with the exponent close to 2. From the perspective of multiscaling the analysed time series reveal the multifractal organization with the left-sided asymmetry of the corresponding singularity spectra. Even more, all the considered financial instruments appear to be multifractally cross-correlated with oil, especially on the level of medium-size fluctuations, as the multifractal cross-correlation analysis carried out by means of the multifractal cross-correlation analysis (MFCCA) and detrended cross-correlation coefficient $\rho_q$ show. The degree of such cross-correlations is however varying among the financial instruments. The strongest ties to the oil characterize currencies of the oil extracting countries. Strength of this multifractal coupling appears to depend also on the oil market trend. In the analysed time period the level of cross-correlations systematically increases during the bear phase on the oil market and it saturates after the trend reversal in 1st half of 2016. The same methodology is also applied to identify possible causal relations between considered observables. Searching for some related asymmetry in the information flow mediating cross-correlations indicates that it was the oil price that led the Russian ruble over the time period here considered rather than vice versa.

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Marcin Wątorek, Stanisław Drożdż, Paweł Oświȩcimka, Marek Stanuszek. 2018-12-20. Multifractal cross-correlations between the World Oil and other Financial Markets in 2012-2017. https://doi.org/10.1016/j.eneco.2019.05.015

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