Dynamic Interrelationship between Major Crude Oil Prices: Estimation by Multiple Sub-Periods regarding Key Global Events and Time-varying Coefficient
Dynamic Interrelationship between Major Crude Oil Prices: Estimation by Multiple Sub-Periods regarding Key Global Events and Time-varying Coefficient

Summary/Abstract: The aim of this paper is to investigate dynamic interrelationship between four major crude oil prices, Western Texas Intermediate, Brent, Dubai, and Oman, by multiple sub-periods analysis as well as time-varying coefficient from January 1, 2007 to December 31, 2019. The multiple sub-periods are quantitatively constructed by the structural breakpoints identification method and then qualitatively justified by matching those with key economic and political events. GARCH family models, such as an extended GARCH (1,1) and Diagonal BEKK-GARCH model find that (1) volatility spillover and correlations between the selected four crude prices, in general, varied over time, (2) Dubai prices tended to be followed by all other prices over the years, (3) Prediction of oil prices became harder for the Asian crude oil markets, such as, Dubai and Oman, than for the Western markets during the sub-period in which the Arab springs events were involved. These findings shed light on the features of the major crudes oil prices interrelationship for the recent 15 years.

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