Tanker freight rates and economic policy uncertainty: A wavelet-based copula approach

Abstract This study examines the dynamic relationship between global economic policy uncertainty (GEPU) and tanker freight rates in both time- and frequency-domains. The tanker shipping market is shown to be susceptible to global political and economic risks. Given the recent high economic policy uncertainty pertaining to the world and the important role maritime transport plays in the global oil trade, it is a vital task to evaluate the dependence dynamics between economic policy uncertainty and tanker freight rates. The return series are first decomposed into different frequency components using wavelets in order to identify the dependence structure in different time scales. Second, the average and tail dependence behaviors are depicted using a wide range of both static and time-varying copula functions. The empirical results demonstrate significant time variations in the dependence structure between GEPU and tanker freight indices over different time scales. The results of this study convey significant policy implications and strategic planning for energy transport players.