Dynamic Conditional Correlation between Dollar, Euro and Oil Prices in Iran with Long Memory and asymmetry (MFIEGARCH-DCC APPROACH)

Document Type : RESEARCH PAPER

Authors

1 Ph.D. Candidate, Department of Economics, Faculty of Economics, Management and Commerce, University of Tabriz, Tabriz, Iran.

2 Associate Professor, Department of Economics, Faculty of Economics, Management and Commerce, University of Tabriz, Tabriz, Iran

3 Professor, Department of Economics, Faculty of Economics, Management and Commerce, University of Tabriz, Tabriz, Iran.

Abstract

Evaluating the correlation between financial assets is one of the basic issues in investment analysis and risk management. Investors who try to diversify their asset portfolio in order to avoid risk pay special attention to the connections between markets. In recent years, the existence of long-term memory in Iran's financial markets has been an important part of time series analysis. Empirical evidence shows that negative and positive shocks do not have the same effect on the fluctuations of time series of financial variables. In this research, the dynamic conditional correlation relationship between currency markets and oil prices is investigated with emphasis on long-term memory effect and asymmetry of their influence. For this purpose, the daily data of oil prices and common currencies of dollar, euro, yuan and lira have been used between 2/5/1393 to 24/1/1402. The results of the FIEGARCH-DCC data analysis indicates the existence of a negative and meaningless conditional correlation between the oil price  and the dollar rate, and the existence of a positive and significant conditional correlation between the oil price and the euro rate. In foreign exchange transactions, positive and significant correlations between currencies are confirmed. Also, the existence of long-term memory in the studied time series is confirmed.

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Main Subjects

References

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