A co-integration analysis of the interdependencies between crude oil and distillate fuel prices

Abstract

The co-evolution and co-movement of financial time series are of utmost importance in contemporary finance, especially when considering the joint behaviour of asset price realizations. The ability to model interdependencies and volatility spill-over effects introduces interesting dimensions in finance. This paper explores co-integrating relationships between crude oil and distillate fuel prices. Existence of multivariate co-integrating relations and bidirectional Granger-Causality is established among the series. It is also established that even after fitting a full VECM, the residuals are not necessarily multivariate normal suggesting the noise could as well be multivariate GARCH.