Heterogeneity and Correlation-Volatility of Oil and Stock


Student thesis: Doctoral Thesis

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Awarding Institution
Award date19 Apr 2021


This thesis explores the effects of households’ heterogeneity on the crude oil, stock, and bond markets in an equilibrium model. The asset prices, volatilities, and correlations admit closed-form solutions depending on households’ heterogeneous beliefs and preferences. The model estimation shows excellent performance in fitting three markets, including term structures of interest rates and crude oil futures, volatilities, and the correlation between stock and two other markets. The model can explain many empirical regularities, including the time-varying correlation-volatility of oil and stock, decreasing and convex volatility term structure of crude oil futures, and the V-shaped relationship between the futures volatility and the slope of the futures curve.