Linkages between global crude oil market volatility and financial market by complexity synchronization
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Linkages between global crude oil market volatility and financial market by complexity synchronization Yani Xing1 · Jun Wang1 Received: 3 July 2017 / Accepted: 7 July 2019 © Springer-Verlag GmbH Germany, part of Springer Nature 2019
Abstract In this paper, we investigate the linkages between global crude oil market volatilities and financial markets and the degree of synchrony of crude oil markets and stock markets. A nonlinear cross-analysis of bivariate data method called CRP is applied to study the probability distribution of occurrence of similar states and the time span of occurrence of synchronization dynamics for crude oil return series and stock return series. Further, a new composite multiscale complexity invariance distance is introduced to measure the similarity of complexity between crude oil markets and stock markets. The results of this study show that there is a synchronization in the crude oil markets and stock markets, and those two systems have similar complexity from composite multiscale perspective. Keywords Crude oil market · Financial market · Cross-recurrence · Time span of occurrence · Composite multiscale complexity invariance · Synchronization
1 Introduction Recently, international crude oil price has experienced various volatilities because of the clustering of numerous risk factors, which has increased uncertainties for oil price forecast and dramatic market risks for investors. As a result of that, the pricing mechanism of international crude oil market has become a popular topic (Zhang et al. 2008; Wang and Wang 2016; Polemis 2012; Liao et al. 2016). As an important primary commodity, crude oil is a major input of economy; the volatilities and the volatility shocks in commodity markets have significant effects on various economic activities (Teixeira et al. 2017; Jiménez-Rodríguez 2015). There are massive empirical evidence to reveal the relationship between crude oil price changes and economic changes.
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Yani Xing [email protected] Institute of Financial Mathematics and Financial Engineering, College of Science, Beijing Jiaotong University, Beijing 100044, People’s Republic of China
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Y. Xing, J. Wang
Hamilton (1983) attested that the increase in crude oil price precedes every recession cycle in the USA, and Mork (1989) supported the same view by his work. Rafiq et al. (2009) used quarterly data form Thailand and provided an excellent description of previous studies in this field, which revealed that oil price shocks have important effects on output, inflation, employment, investment, interest rate and exchange rate. If crude oil price is one of crucial factors of economy, we would expect that the volatility of crude oil markets will be linked to the stock price levels of many listed firms. Therefore, the relationship between crude oil price volatility and stock market volatility seems to be quite evident. Considering the close relationship between crude oil markets and stock markets, investigating the similarity and synchronization of complexity for these two systems h
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