Study on the Risk Contagion Effect of Crude Oil Prices and Tanker Market Based on Mixed Clayton Copula Model

Abstract

Abstract: Since the outbreak of COVID-19, the international shipping market structure and demand have changed dramatically, and crude oil prices and tanker freight rates have fluctuated dramatically. The fluctuation of crude oil price is closely related to the tanker market, and the risk of tanker investment is intensified. Therefore, one of the important ways to control risks and optimize investment strategies under the current environment is to study the impact of COVID-19 on crude oil prices and tanker market. In this paper, the mixed Clayton copula model is used to analyze the dependence and tail risks of crude oil prices and tanker market before and during the outbreak of COVID-19. Firstly, the ARMA-GARCH-Skewed-t model is used to capture the volatility characteristics of the return series. Secondly, the mixed Clayton copula model is applied to describe the nonlinear dependence between the return series of the crude oil prices and tanker market. Meanwhile, the tail dependence is used to reveal the law of risk contagion between crude oil prices and tanker market under COVID-19. The study shows that the negative correlation between crude oil prices and the tanker market is stronger than the positive correlation in all sample periods. The positive correlation between crude oil prices and the tanker market decreases while the negative correlation increases under COVID-19. In particular, the negative correlation between VLCC tanker freight and WTI increases the most. In addition, there is a risk contagion effect of crude oil price on the tanker market in each sample period, and the positive risk is far less than the negative risk. The positive risk of crude oil price on the tanker market decreases, and the negative risk increases significantly.

Key words: crude oil prices, tanker market, risk contagion, mixed Clayton copula model

Xue Kaili, Kuang Haibo, Yin Hang, Meng Bin. Study on the Risk Contagion Effect of Crude Oil Prices and Tanker Market Based on Mixed Clayton Copula Model[J]. Management Review, 2023, 35(9): 262-273.

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