Time-Varying Co-movements between Wti and European Capital Markets: Implications for Portfolio Diversification and Hedging Strategies
Time-Varying Co-movements between Wti and European Capital Markets: Implications for Portfolio Diversification and Hedging Strategies

Author(s): Mariana Chambino, Rui Dias, Nicole Horta
Subject(s): Social Sciences, Economy
Published by: Udruženje ekonomista i menadžera Balkana
Summary/Abstract: This paper aims to analyse whether the events of 2020 and 2022 (Covid-19 pandemic crisis, the oil price war between Russia and Saudi Arabia, and the Russian invasion of Ukraine in 2022) affected efficiency, and accentuated shocks across markets in the Netherlands (AEX), Belgium (BEL 20), France (CAC 40), Portugal (PSI 20), Norway (OBX), and in the West Texas Intermediate (WTI) oil index, during the period from September 18th, 2017, to 15th, September 2022. The findings reveal that markets exhibit more substantial signals of (in)efficiency throughout the global economy’s uncertainty sub-period; nonetheless, we find that the shocks across markets did not increase from the Tranquil sub-period to the Stress sub-period. Furthermore, we also find that WTI lacks the hedging and haven features exhibited by the European capital markets studied. These findings have significant consequences, especially for overseas investors and oil corporations, which try to spread risk, particularly during uncertain times. Finally, we demonstrate that there is no evidence that market (in)efficiency increases the co-movements.

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