Stochastic Copula Approach for Modeling Dependency: Evidence from Commodity and Exchange Rate Markets

Authors : Emre Yıldırım, Mehmet Ali Cengiz

Pages : 1-18

View : 59 | Download : 46

Publication Date : 2024-07-28

Article Type : Research Paper

Abstract :In this study, the dependency structure between commodity prices and exchange rates of BRICS countries is modeled by the stochastic copula which is a particular class of time-varying copulas. This model is a nonlinear and its parameter follows an unobservable stochastic process. Since this approach regards both the observations and the latent process, it enables to be handled the dependency in a more flexible and comprehensive way. The data set includes daily closing prices between January 2015 and December 2022, and they are extracted from Yahoo finance website. RStudio and MATLAB programs are used to analyze the data. It is found that there is a time-varying symmetrical dependence between oil prices and the exchange rates of BRICS countries. It should not be ignored that there is an upper tail dependence for oil and BRL and oil and RUB, and a lower tail dependence for oil and exchange rates of other BRICS countries. On the other hand, there is a time-varying symmetrical dependence between gold and the exchange rates of other BRICS countries while the relationship between gold and BRL is mostly measured by the upper tail dependence. Finally, it is suggested that dependency between gold and oil prices are dynamic and symmetric, but the upper tail dependency should be taken into account to measure the effect of asymmetry. The findings have important implications for policy makers and investors.
Keywords : Bağımlılık Modelleme, Emtia Fiyatları, Döviz Kuru, BRICS Ülkeleri, Stokastik kapula