Multifractal detrended cross-correlations between WTI crude oil price fluctuations and investor fear gauges

ABSTRACT

This article investigates the cross-correlations between WTI crude oil prices and fear gauges using cross-correlation statistic test and multifractal detrended cross-correlation analysis. The results show that the cross-correlations between crude oil prices and three different kinds of fear gauges are multifractal. By finding the ‘crossover’, we separate the three pairs of time series into the short term and long term, and find that cross-correlations of small fluctuations are persistent in the short and long terms, cross-correlations of large fluctuations are strongly anti-persistent in the short and long terms. The relationship is useful to profit in future markets.

KEYWORDS:

• Cross-correlations
• MF-DCCA
• WTI
• fear gauges

JEL CLASSIFICATION:

• C32
• C61

Acknowledgments

We thank editors and an anonymous referee for their useful comments and suggestions.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ The VIX is a crucial gauge of the market’s expectations of near-term (30-day) volatility which is widely considered to be the world’s premier barometer of investor sentiment and market volatility. VIX values greater than 30 are generally associated with a large amount of volatility due to investor fear or uncertainty, while values below 20 generally correspond to less stress in the markets.

² The VXD (CBOE DJIA (Dow Jones Industrial Average) Volatility Index) is based on real-time prices of options on the DJIA (DJIA, with an options ticker of DJX).

³ The VXN index is based on the Nasdaq-100 index.