Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/127345
Authors: 
Conrad, Christian
Loch, Karin
Rittler, Daniel
Year of Publication: 
2012
Series/Report no.: 
Discussion Paper Series, University of Heidelberg, Department of Economics 525
Abstract: 
Using a modified DCC-MIDAS specification, we endogenize the long-term correlation between crude oil and stock price returns with respect to the stance of the U.S. macroeconomy. We find that variables which contain information on current and future economic activity are helpful predictors for changes in the oil-stock correlation. For the period 1993-2011 there is strong evidence for a counter cyclical behavior of the long-term correlation. For prolonged periods with strong growth above trend our model predicts a negative long-term correlation, while before and during recessions the sign changes and remains positive throughout the economic recovery. Our results strongly suggest that crude oil prices cannot be viewed as being exogenous with respect to the U.S. macroeconomy and explain the controversial results concerning the oil-stock relationship in previous studies.
Subjects: 
Oil-stock relationship
long-term volatility
long-term correlation
GARCH-MIDAS
DCC-MIDAS
JEL: 
C32
C58
Q43
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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