Copula model dependency between oil prices and stock markets: evidence from China and Vietnam

Abstract

The uncertainty of a country's economy, especially emerging economies, is partially due to the fluctuating of oil prices. There is also a growing concern about the relationship between oil price and stock markets in developing countries due to their heavy dependence on oil prices co-movements. This paper attempts to understand the relationship between China and Vietnam markets using nonparametric (chi- and K-plots) and parametric (copula) methods. We observe that the left tail dependency between international oil prices and Vietnam's stock market while Chinese market shows opposite results. These findings provide a new insight into the behavior between oil prices and stock markets, thus leading to meaningful implications for policy makers, investors and risk managers dealing with these two markets.