Abstract
•There is a significant directional predictability from most of energy commodities to the OPEC basket and the very light Tapis crude oil.•Predictability for both directions is enabled only between the light Brent and the light WTI and between the OPEC basket and the Malaysian Tapis.•Predictability is more accented for a one lagged day and in the upper quantiles.•Malaysian TAPIS can be a good hedging vehicle for other major energy markets.•There is a reduction of portfolio risk through diversification between two different oil regions.
This study sheds a new light on the dependence and the directional predictability between eight major energy price returns, using the Cross-Quantilogram (CQ) and the Partial CQ (PCQ) analysis. The energy prices cover the time series for the U.S. natural gas and seven internationally traded crude oil types. The results reveal a significant directional predictability running from most of energy commodities returns to the OPEC basket and the very light Tapis crude oil returns. However, the quantile predictability in both directions is enabled only for the relations between the light Brent and the light WTI, and between the OPEC basket and the Malaysian Tapis. The time-varying predictability analysis reveals that there is a significant upper quantile dependence between these international energy commodities. Finally, we find that the TAPIS can be a good hedging vehicle for other energy markets. These findings may be instructive for both policymakers (in terms of financial stability) and market participants (in terms of performance).